Pay Transparency Directive: What companies need to do now

The Pay Transparency Directive is coming. In future, companies will have to actively demonstrate that their remuneration systems are fair, transparent and gender-neutral.

What at first glance appears to be a reporting issue actually has more to do with compensation logic, role models, data structures and dealing with salary issues.

Many companies are not prepared for this. This can become a problem.

In this post:

Pay Transparency Directive: What will really change for companies

The EU Remuneration Transparency Directive significantly expands the existing German Remuneration Transparency Act. Previously, only individual rights to information applied; now there are binding requirements for the entire remuneration system.

Even though the directive has the term “transparency” in its name, it should not be reduced to this. In practice, it will be put to the test on three levels:

• for the quality of HR data and systems,
• for the resilience of role models and remuneration logics and
• for the ability of managers to explain salary decisions in a comprehensible manner.

For companies, this means

• Transparency is no longer optional, but mandatory.
• Employees receive extended rights to information, and
• Companies must be able to justify remuneration decisions.

This also results in a reversal of the burden of proof: if there is a suspicion of unequal treatment, companies will in future have to prove that their remuneration is based on objective and consistent criteria.

Individual measures are not enough. Clear structures, coordinated processes and a systematic approach are required.

The real problem: Most remuneration systems are not “auditable”

In many companies, salary structures have grown over the years. Decisions are based on experience, market value or individual negotiations.

This is common practice, but becomes a problem if these decisions are not uniformly documented and comprehensible. Remuneration can be explained, but not clearly documented. Roles are not clearly defined and uniform criteria are lacking.

This is precisely where the Pay Transparency Directive comes in: It requires not only transparency, but also comprehensible and consistent structures.

“In many companies, the Pay Transparency Directive will not fail because of the legal department, but because of a lack of systematization in HR data, unclear role models and unprepared managers.

– Christian Gronowski, SAP HCM expert ML Gruppe

In concrete terms, this means that companies should start reviewing their remuneration logic at an early stage and create the necessary conditions within the company. This also includes preparing managers and executives to implement transparency securely and consistently.

What are the specific obligations for employers? (Practical overview)

The new obligations of the Pay Transparency Directive relate in particular to recruiting, internal information processes and the systematic reporting of salary structures.

1. transparency in recruiting
Salary details or salary ranges must already be stated in job advertisements. It is also not permitted to ask about previous salaries. This is intended to make remuneration transparent and comparable from the outset.

2. right to information for employees
Employees have the right to receive information about their salary and the underlying criteria as well as average salaries for comparable activities. These comparative figures must be differentiated by gender.

3. reporting obligations (pay gap reporting)
Companies above a certain size are obliged to report regularly on pay differences between men and women. The requirements are staggered according to company size. Conspicuous deviations must be analyzed and justified.

4. obligation to evaluate pay
If a gender pay gap of more than 5 percent cannot be explained by objective and gender-neutral criteria, companies are obliged to systematically review salaries, usually together with employee representatives.

5. burden of proof and sanctions
Companies must be able to prove that their remuneration systems do not contain any unlawful unequal treatment. Violations may result in sanctions and possible claims for compensation.

The critical points of the directive – and why they are so challenging

Articles 4, 7 and 9 of the Pay Transparency Directive in particular are the focus of many companies. They specify the requirements for remuneration, information and reporting.

Art. 4 – Remuneration must be explainable

Art. 4 requires remuneration decisions to be based on objective and gender-neutral criteria. In practice, this means that companies need clear evaluation criteria for roles, responsibilities and performance.

But: In many organizations, these criteria are not uniformly defined, are not consistently applied or often do not even exist.

The reality: Managers often decide salaries according to the situation, for example on the basis of market pressure, individual negotiations or personal assessment.

In future, these decisions must be justified in a comprehensible manner. Without clear criteria, this will be difficult.

Art. 7 – Employees may ask specific questions

Employees have the right to compare their salary with average values for comparable jobs performed by colleagues. General statements such as “You are paid fairly” are not sufficient.

Managers must be able to explain salaries in concrete terms. This presupposes that they know the underlying criteria and are confident in dealing with relevant questions.

In practice, it is clear that without targeted preparation, communication skills and clear principles, uncertainties quickly arise.

Art. 9 – Reporting makes differences visible

Companies must regularly evaluate and report on the gender pay gap. Salary structures thus become systematically visible – internally and externally.

Deviations must not only be recognized, but also explained in a comprehensible manner. Where this is not possible, there is a need for action.

This will be a reality check: the unclear structures that were previously hidden will now be on the table. This can strengthen or shake trust.

This makes it clear that the requirements of the Pay Transparency Directive can hardly be met without structured skills development, uniform criteria and evaluation systems.

A point that many companies still underestimate.

“Most companies will buy a solution, for example a tool, a framework or a concept. And then realize that the problem lies elsewhere: with the people who have to deal with it. The guideline alone does not create fair remuneration. It makes unfair remuneration visible. If you don’t have any answers, you don’t have a compliance problem – you have a trust problem. That’s exactly where we come in.”
– Christian Gronowski, SAP HCM expert ML Gruppe

What steps do companies need to take now?

Companies need a clear approach that takes equal account of remuneration, processes and communication.

Such an approach includes the following steps in particular:

1. As-is analysis of the existing remuneration structure
   What roles are there? How are salaries distributed? And what criteria are they based on? Only those who know their own starting position can make targeted adjustments.
2. Definition of transparent criteria for job and evaluation systems
   Decisions on salaries must be based on comprehensible principles. This includes clearly defined requirements for roles, uniform evaluation criteria and documented remuneration ranges.
3. Development of job and evaluation systems
   Comparability does not happen by itself. Companies need structured systems on the basis of which they can classify roles and derive salaries.
4. Creation of reporting processes
   The requirements for reports and evaluations are increasing due to the Remuneration Transparency Directive. In order to meet these requirements, data must be collected, consolidated and regularly evaluated in a structured manner.
5. Checking data quality and HR systems
   In many companies, the challenge lies not only in the legal assessment, but also in the practical mapping: are jobs, roles, salary components, working hours, organizational units and career levels maintained in the HR systems in such a way that reliable evaluations are possible?
   In HR and ERP systems (such as SAP HCM or SAP SuccessFactors) in particular, pay transparency therefore also becomes a question of data quality, process understanding and user competence. SAP has developed specific functions for this, such as the automated creation of pay transparency statements, the mapping of salary bands in job advertisements and the analysis of the gender pay gap in People Analytics. These functions help – but only if the underlying data is clean and fully maintained.
   Pay transparency does not start with reporting – but with data maintenance. If you do not have a clean basis there, you cannot reliably create the required evaluations.
6. Adapt recruiting processes
   Salary details in job advertisements, clear offer processes and a consistent approach to remuneration issues are becoming standard.
7. Training for HR and managers
   An often underestimated point: remuneration must not only be systematically determined, but also convincingly explained.
   The new transparency is also changing the role of managers. In future, those who communicate salary decisions will need more than just gut instinct and negotiating experience. Managers must understand remuneration criteria, apply them confidently and be able to explain them clearly in sensitive discussions.
   What initially sounds like extra work can also be a relief. If you have clear criteria, you no longer have to defend salary decisions but can justify them objectively. Transparency not only creates obligations, but also security. The decisive factor is whether managers and HR know this basis and can apply it with confidence: in understanding the remuneration structure, in applying the criteria consistently and in communicating the decisions based on them.

But structures alone are not enough. It’s the implementation that counts.

It is crucial that managers and HR understand the requirements and can apply them with confidence. This requires targeted skills development within the company.

Conclusion: pay transparency is not a reporting issue. It is a mirror.

The Remuneration Transparency Directive is often dismissed as a bureaucratic requirement. In practice, it mainly does one thing: it makes the actual remuneration logic in a company visible.

What emerges is not new, but it is uncomfortable: a lack of systematics in job evaluation, inconsistent decisions on salaries and unclear criteria and processes. The directive ensures that these points can no longer be ignored.

The directive does not force us to do something completely new – but it does force us to become consistent.

For companies, this means sharpening evaluation logic, standardizing decision-making processes and clearly structuring how remuneration is handled. And, above all, ensuring that HR and managers not only implement the requirements formally, but can also explain and handle them with confidence. This is where competence building becomes a decisive factor.

Companies that take this seriously not only gain compliance, but also a workforce that not only expects fairness, but also experiences it.

On the other hand, those who postpone the issue come under pressure – at the latest when employees ask questions and there are no answers.

The ML Gruppe supports companies in this process. From the development of sustainable structures to the targeted empowerment of HR and managers.

Do you want to implement the Pay Transparency Directive correctly?

We plan and implement the appropriate structures and roles in your company. Talk to us.