Navigating the New EU Directive on Pay Transparency
In a move designed to close the gender pay gap, the European Commission is increasing pay transparency across member states. Prepare your firm now for potential implications and opportunities.
Key Takeaways
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Regulations on pay transparency mean businesses in the EU will have to take action against pay discrepancies related to gender.
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Companies will need to assess and update existing pay and related people practices.
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If done well, complying with the new directive will result in many far-reaching business benefits.
Pay transparency regulations are sweeping the globe. Many regions are raising the stakes even further to help close gaps in the workplace. In New York City, for example, job seekers can now find out what some of the top companies in the world are paying for certain roles. California this year introduced similar legislation that requires employers with 15 or more employees to include pay scales in job postings. In the UK the government launched a pay transparency pilot scheme that encourages organizations to display salaries in all of their job ads. Meanwhile, Japan requires companies to increase disclosure of their gender wage gap by listing it on company websites and annual securities reports.
While some European Union (EU) countries, like France, had codified gender pay calculation and disclosure into law (the Penicaud Index), others, such as Finland, had not.
To align EU member states to a common set of standards and improve the impact of existing regulations, the EU has adopted the Pay Transparency Directive. Following approval by the EU Parliament on 30 March 2023 and adoption by the EU Council on 24 April 2023, it was published in the Official Journal of the EU (OJEU) on 17 May 2023, coming into force twenty days later. EU member states now have until June 2026 to “transpose” the directive to national legislation.
This means firms now have to prepare for the new pay transparency requirements.
EU Pay Transparency Directive Objectives
The intention of the pay transparency directive is to solidify the principle of equal pay for equal work through enhanced transparency and enforcement. The regulation focuses on the pay differences between men and women.
Taking a broader view, the Pay Transparency Directive aligns with another EU regulation adopted recently, the Corporate Sustainability Reporting Directive (CSRD). This directive will require companies to disclose the percentage gap in pay between men and women. It will also require the disclosure of the total compensation ratio of the highest paid individual to the average total compensation for all employees.
“The pay transparency directive will nicely complement the CSRD directive and help companies ‘walk the talk’ when it comes to pay equity,” says Madeleine Catzaras, ESG People Solutions & Solutions Development Lead-EMEA, Health Solutions, Aon. “Board members, labor unions, employees and investors are increasingly scrutinizing and tracking pay-related KPIs. This reinforces that pay and the surrounding topics of equity and transparency are no longer nice-to-haves, but key pre-requisites for an ESG and DE&I [diversity, equity and inclusion] strategy for the long term.”
Here’s what organizations can do to meet the regulations.
EU Pay Transparency Directive Requirements
When the directive comes into effect, employers with at least 100 employees will need to publish information on the pay gap between female and male workers. In the first stage, employers with at least 250 employees will report every year, and employers with between 150 and 249 employees will report every three years. Where a gender pay gap of 5 percent or above exists, employers will also be required to work with their employee representatives/works councils to conduct a deeper analysis and develop a corrective action plan. Additional key requirements include:
- Job applicants will have the right to receive information on the initial pay level/range for any advertised position and employers cannot ask about previous or current pay.
- Employers cannot prohibit employees from disclosing their pay details (e.g., pay secrecy/confidentiality clauses).
- Employers must share information on how pay is set, progressed and managed. They are required to disclose details on their promotion and progression criteria. Any pay differences must be related to objective criteria (e.g. performance/market premium), not related to gender.
- Tools to compare and assess pay levels must be based on gender-neutral criteria and include gender-neutral job evaluation/classification systems. This could represent a significant change for any employers who do not have a job architecture underpinned by a recognized analytical job evaluation methodology.
- Although most countries already have pay equity mechanisms in place, they will have to certify they meet the terms of the directive and as a result additional changes are anticipated. For those without pay equity programs, this will be a substantial change.
13%
is the estimated gender pay gap across the EU. Progress to close this gap remains too slow.
Source: The European Commission
Your Pay Transparency Checklist
While two to three years may sound like a long time to implement change, when you consider the nature and extent of the change for some organizations, it’s imperative to act now.
Stay ahead of the curve by assessing your existing practices against the regulations. This checklist outlines some of the main questions to ask to ensure your firm is ready.
✔ Is your approach to levels/grades robust, non-discriminatory and underpinned by an analytical job evaluation and classification methodology?
Use gender-neutral tools and criteria to compare pay levels, including gender-neutral job evaluation and classification systems. Simply matching roles into a hierarchy based on salary levels, reporting lines or a pay benchmarking report is not enough. You must use an approach that delivers a clear understanding and identification of equal work across the breadth of the entire business.
✔ Do you have clear guidance to support reward and promotion decisions that you’d be comfortable sharing with employees?
Employers are increasingly moving away from pay and promotion decisions that are based purely on the line managers’ and executive leaders’ discretion due to the potential risk for bias. While many firms have introduced guidance to help manager decisions, these documents will need to be available to employees in the future. For example, what factors are considered in determining pay and pay progression? How are final pay and promotion decisions made across the organization?
✔ What is your current gender pay gap and how can you improve to meet the directive?
The new requirement to conduct a joint pay assessment and develop an action plan if a gender pay gap of more than 5 percent exists, represents a significant commitment to pay equity in the EU. It’s important to remember that you can have a strong approach to equal pay for equal work, yet still have a sizeable gender pay gap because of the composition of your current workforce. You may need to take some time to consider your recruitment practices and gender representation before making significant improvements.
✔ If you use performance management as a rationale for pay differentiation, how robust and consistent is your current approach?
Any pay differences must be related to objective criteria such as job performance. If there is a sustained and demonstrable performance difference between two individuals, then a pay difference may be defensible. However, if you choose to take this route, you will need to ensure that your performance management approach is robust, with a documented set of outcomes and consistency across the business that is applied through trained managers. Now is a good time to review your existing performance management process to ensure consistency is in place before it is called into action.
✔ Do you have enough market data to defend potential differences based on market premiums?
In addition to performance, another common justification used by employers to explain why two roles on the same level are paid differently is market premiums. While, in most cases, this is a perfectly valid factor to inform pay level, it does require the employer to be able to prove the existence of these premiums through market data. Consider whether you have sufficient confidence in your data and if it is as up-to-date. It should serve as a central component of your reward decision-making and both HR and business leaders need to be confident in the data and how it is being used.
✔ Could more transparency on pay for advertised roles raise concerns for existing employees?
Aon’s employee reward team in the UK recently delivered a project for a client who already published salary levels for every role they advertised in the market. While this was a significant step toward transparency, it did bring other issues to the forefront. Existing employees described it as the biggest source of dissatisfaction and disengagement, as they saw roles they perceived to be similar to their own being advertised at higher salary levels. They felt as if they were being punished for their loyalty. As disclosure of pay ranges in job adverts becomes more universal across the EU, employers will need to consider the impact it will have on existing employees. Employers will need to ensure that robust and transparent job architecture and reward strategies are in place. We anticipate addressing this concern will be challenging in a high-inflation environment, where salaries for candidates are climbing, yet internal annual pay increase budgets are struggling to keep up.
Act Now on Pay Transparency and Drive Results for Your Organization
Many of the changes that employers will be required to make may seem complex and time-consuming. They may even need to be part of a wider cultural change program and align with the organization’s ESG and DE&I strategy. But there are benefits.
The CSRD is specific about adequate pay, pay gaps and pay equity, which is all related to DE&I and covered under the ‘S’ pillar of ESG. When combined with this new directive, it’s clear that the ‘S’ is getting increased attention from regulators.
Expected benefits for businesses from the pay transparency directive include:
- Robust, transparent levels and grades across the business will enable clearer career planning.
- Greater levels of transparency around career progression and levels of work across the business will help reduce turnover levels as employees can see how their careers can develop and progress within the business.
- Managers and HR leaders will have a clear framework and toolkit to guide their decision-making. As a result, improved employee attraction, retention and engagement through transparency and consistency of approach will inspire trust — one of the most pivotal retention tools in today’s market. This is especially the case when salaries are struggling to keep pace with inflation and employers are challenged to retain key talent.
- Greater alignment and integration with the organization’s DE&I policies, as well as their broader ESG strategy and vision.
Some changes could take several months to deliver. These are not projects that should be rushed at the last minute. Firms that remain proactive and deliver on these requirements will experience benefits that extend well beyond simple compliance.
Next Steps for Navigating the EU Pay Transparency Directive
Employers in the EU have time to approach these changes for optimal impact. The first step will be to ensure leadership is briefed and understands the directive so they can assess current practices against the requirements and conduct an analysis to gauge readiness. Most employers will need to develop a prioritized and integrated action plan to deliver the necessary changes over the next few years. Companies should not treat these updates as surface-level quick fixes. Instead, pay transparency should be positioned within a company’s broader ESG and DE&I strategies. This will ultimately help justify transformational decisions that take time to roll out and adopt.
Throughout the process, remember to look for opportunities to drive more transparency by involving employees in the design and development of your plans where appropriate.
Most of all, take advantage of this time and use this as an opportunity to be proactive and enhance your reputation among existing and potential employees by acting as a visible leader in driving the required change.
For more information on how your firm can prepare for regional regulations related to pay transparency, please contact one of our experts at [email protected].
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The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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Pay Transparency Can Lead to Better Equity Across Benefits
Efforts to bring more transparency to pay practices shine a light on benefits equity — and it’s not only about wages and salary.
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Article 3 mins
Building Resilience Against the Constant Cyber Threat
The rapid pace of digitalisation means that organisations in the UK are constantly struggling with the ever-present threat of cyber attacks.
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Article 2 mins
Creating a Fair and Equitable Workforce for Everyone
Equity has an important part to play in a balanced strategy to improve the attraction and retention of key employees.
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Article 2 mins
How to Balance the Conflicting Forces of Efficiency, Performance and Wellbeing
How are business leaders adapting to a generational change in how work gets done?
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Article 2 mins
Introduction: Clarity and Confidence to Make Better Decisions
Lori Goltermann, CEO of Regions and Enterprise Clients, Aon examines the main issues discussed at the event.
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Article 2 mins
Making Better Decisions – A Treasurer’s Perspective
Our panel discussion looked at the issues facing corporate treasurers and how they have become more complex and interconnected.
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Article 3 mins
Seizing the Opportunity: Building a Comprehensive Approach to Risk Transfer
Businesses are still in search of competition, alternatives and innovation in their insurance programmes.
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Article 2 mins
Tapping New Markets to Unlock Deal Value
Companies and financial sponsors are constantly seeking innovative and capital-efficient ways to facilitate M&A deals.
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Article 2 mins
The Age of Rising Resilience – An Economic Outlook
Professor Trevor Williams analyses the latest indicators and what they mean for the UK — and global — economy.
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Article 2 mins
The Aon Difference
How Aon is moving further, faster to bring new, innovative solutions that address companies’ risk and people challenges.
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Article 5 mins
The Rise of the Skills-Based Organisation
Today's employers need to continually learn and adapt to emerging technologies and skills if they are to thrive in the talent landscape.
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Article 3 mins
The Year of the Vote: How Geopolitical Volatility Will Impact Businesses
Companies that operate around the world need to have a global appreciation of the heightening geopolitical risk.
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Article 6 mins
Three Ways Collective Retirement Plans Support HR Priorities
Collective retirement plans are growing in popularity and improving employees’ financial wellbeing in the process. Other advantages that haven’t been as widely explored include how these retirement structures allow HR to shift its focus to strategy.
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Article 8 mins
How North American Construction Contractors Can Mitigate Emerging Risks
Getting ahead of risk is vital for North American construction contractors, as they aim to manage evolving issues, while delivering job safety, solving workforce shortages and containing project costs.
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Alert 6 mins
U.S. Department of Labor Restores and Extends Overtime Protections
The Department of Labor released a final rule increasing overtime protections for the standard salary level threshold for the “white collar" exemptions and the threshold for employees classified as Highly Compensated Employees. Employers need to prepare for these significant changes.
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Article 10 mins
How Insurers Can Capture Climate Opportunities
Climate change adaptation and the transition to net zero present huge premium growth opportunities for insurers. The key question is how to get started.
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Article 7 mins
How to Navigate the EMEA Cyber Risk Insurance Market
As the cyber insurance landscape continues to evolve in EMEA, companies need actionable insights and solutions to strengthen their cyber risk strategies.
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Article 9 mins
Insurers Seek Risk Transfer Solutions to Offset Higher Retentions and Resume Growth
The challenges of 2023 eroded the buffers that many insurers had previously enjoyed, bringing an increased focus on capital management and a variety of capital sources according to Aon’s capital poll.
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Report 18 mins
Evolving Technologies Are Driving Firms to Harness Opportunities and Defend Against Threats
While advancements in AI, cyber and data technology are helping companies operating in an increasingly digital world gain a significant competitive edge, they also introduce new and evolving risks.
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Article 6 mins
How to Make the Most of Voluntary Benefit Plans in the U.S.
As healthcare costs rise, voluntary benefits are a critical component of engaging employees, while also helping to manage direct and indirect medical expenses. Here are three strategies for employers to make the most of their voluntary benefits.
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Article 8 mins
NIS2 Compliance Readiness for Organizations across the European Union
The expansive scope, stringent sanctions and pivotal role of management related to the new NIS2 Directive provide a strong foundation to protect against evolving cyber risks.
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Article 8 mins
London Insurance Market: Unveiling Demands for New Skills in 2024
The London insurance market seeks a generation of game-changers who can navigate uncertainties and drive innovation to ensure the industry’s future success in a digitalised world.
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Article 3 mins
Better Decisions in Trade, Technology, Weather and Workforce
From global supply chain risks to climate insecurity, organizations face challenges and complexities on a scale rarely seen before.
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Article 15 mins
How Artificial Intelligence is Transforming Human Resources and the Workforce
Artificial intelligence is having a measurable impact across all aspects of HR — from talent management to compensation, health and benefits, and retirement planning. To effectively harness the technology, HR leaders must ensure both their own teams and the wider workforce are prepared.
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Article 3 mins
Risk Capital and Human Capital Perspectives
Risk Capital CEO Andy Marcell and Human Capital CEO Lambros Lambrou discuss how innovations in Risk Capital and Human Capital can help organizations boost resilience and navigate volatility.
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Report 15 mins
Wide-Ranging Trade Issues Confront Global Businesses on Multiple Fronts
Global business leaders highlight risks linked to trade as some of their top concerns — both physical and financial. While the topic is complex and broad, there are opportunities that business leaders can pursue to stay ahead of emerging trade dynamics.
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Report 16 mins
Climate Analytics Unlock Capital to Protect People and Property
Extreme weather and a changing climate are impacting many of the risks businesses face today. To address future exposures, organizations will need advanced climate and natural catastrophe models and expertise that can assess chronic and acute risks.
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Report 14 mins
A Workforce in Transition Prepares to Meet a Host of Challenges
Engaging a changing workforce requires data and innovation. Workers increasingly expect more than just a paycheck. In response, organizations are balancing costs with the ability to provide a compelling employee experience.
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Case Study 3 mins
How Aon Helped M&G Wealth Develop New Advisor Skills
Aon partnered with UK financial advice firm M&G Wealth to help the firm better understand the make-up of a highly successful advisor of the future, including the skills needed given shifts in societal needs, technology and regulation.
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Article 8 mins
Energy Transition Investments: How Advanced Analytics Can Empower Organizations
Advanced analytics can empower organizations with deeper insights into the risks and opportunities surrounding renewables, while also supporting energy transition investment.
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Article 17 mins
Q1 2024: Global Insurance Market Overview
Positive performance in 2023 fueled insurer growth ambitions but underwriting remained disciplined in the first quarter of 2024.
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Article 12 mins
How Life Sciences Build Robust Talent Pipelines in the Age of Digitalization
While digitalization is delivering transformational change to R&D across the sector, it is also rapidly reshaping recruitment and retention strategies.
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Alert 6 mins
U.S. Federal Trade Commission Bans Employee Noncompete Agreements; Here’s What Employers Should Know
The FTC has announced a rule that bans noncompetes and clauses that have a similar effect. While the rule will face legal challenges, employers should take steps now to prepare for an environment where they cannot use noncompete agreements.
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Article 7 mins
Managing Construction Risks: 7 Risk Advisory Steps
Risk advisory services can help construction stakeholders navigate uncertainties, optimize performance and drive growth in their projects.
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Article 9 mins
Floating Offshore Wind Unlocks New Opportunities and Challenges
While there are similarities in the risk profile of floating offshore wind and bottom-fixed offshore wind, challenges like unproven technology and tow-to-port strategies for maintenance require a collaborative approach between owners/developers and their insurance partners.
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Article 4 mins
Parametrics Unlock Solutions For Future Risks
Macrotrends are transforming our world and creating emerging property-casualty exposures, which will have profound implications for the insurance industry.
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Article 7 mins
U.S. Cyber Insurance: Market Trends and Opportunities
Understanding market trends and future projections in an evolving cyber insurance market is paramount to strengthening risk mitigation and transfer strategies.
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Article 5 mins
How Climate Modeling Can Mitigate Risks and Improve Resilience in the Construction Industry
In an era of escalating climate-related challenges, the construction industry is turning to advanced climate modeling to fortify its risk management strategies.
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Article 14 mins
How Technology Will Transform Employee Benefits in the Next Five Years
Advances in technology will not only transform healthcare and treatment outcomes — benefit offerings, access to care, diagnosis, treatment and affordability challenges will also be radically changed. Here is what to expect as these efforts take shape globally.
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Article 10 mins
Key Trends in U.S. Benefits for 2024 and Beyond
As healthcare costs continue to rise, employers are struggling to balance cost control with attracting and retaining talent. The results of Aon's 2024 U.S. Health Survey point to key strategies organizations are using to help.
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Article 11 mins
Capturing Carbon on the Critical Pathway to Net Zero
As the world races to reduce climate risks and limit CO<sub>2</sub> emissions, the demand for scalable and cost-effective decarbonization technologies is increasing. Carbon capture projects form an important part of the low carbon energy transition, bringing both challenges and opportunities.
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Article 7 mins
Protecting North American Contractors from Extreme Heat Risks with Parametric
Growing extreme heat conditions have escalated risks, delays and costs for the construction industry in North America. Parametric insurance can help protect against such risks, offering contractors and building owners agility, efficiency and flexibility.
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Article 9 mins
How Insurance Can Help Hedge Potential Exposures Under the New Unified Patent Court System
The launch of the Unified Patent Court allows for a new patent filing process across Europe using a centralized system. While this brings significant financial and operational benefits, navigating these changes will demand a robust litigation risk management strategy.
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Article 8 mins
Parametric Can Help Mitigate Extreme Heat Risks for Contractors in EMEA
Construction projects in EMEA are often impacted by extreme heat, leading to project delays and increased costs. Many heat exposures are excluded by traditional markets, however, parametric is a flexible solution that can help mitigate these risks.
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Article 12 mins
Understanding and Preparing for the Rise in Pay Transparency
New regulations in the U.S. and Europe will require companies to be more transparent about their pay practices. Combined with willingness among workers to talk about salary, the era of pay transparency is here.
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Article 11 mins
Advancing Women’s Health and Equity Through Benefits and Support
As companies tailor their health and benefits to meet the needs of their employees, vital areas for support include family building and menopause.
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Article 7 mins
Unlocking Capacity and Capital in a Challenging Construction Risk Market
Complex market dynamics in the construction industry are pushing organizations to proactively explore alternative risk transfer solutions, including parametric insurance and captives.
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Article 11 mins
Securing Human Capital in Natural Resources
As new job roles and technologies emerge in the natural resources industry, employee expectations are also shifting. Leaders must rise to the challenge of securing talent to meet the world’s future energy needs.
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Article 5 mins
Navigating Cybersecurity Risk Under New U.S. Rules
Rulemaking from the Securities and Exchange Commission (SEC) highlights the importance of company transparency with investors and regulators around risk management and the impact of cyber events.
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Article 13 mins
Building Growth From Uncertainty in Financial Institutions
Five ways financial institutions can balance investment with prudence in an uncertain economic climate.
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Article 12 mins
Q4 2023: Global Insurance Market Overview
An increasingly interconnected and complex risk landscape continues to shape risk strategies and market responses.
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Article 13 mins
Top Risk Trends to Watch in 2024
To be successful, business leaders must keep pace with the key trends that will impact the risk and insurance landscape in 2024.
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Article 9 mins
How to Navigate Contractor Shortages in the Energy and Power Industries
Taking a new approach to talent management and planning for worker shortages can help businesses in the energy and power industries build greater operational resilience.
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Article 8 mins
Driving Inclusion and Diversity with Employee Benefits
As organizations build diversity, equity, inclusion and belonging in the workplace, they must also ensure benefit plans are designed and customized to meet the needs of a diverse workforce.
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Article 11 mins
How Investors are Making Better Decisions Amid a Changing Climate
For investors, climate change means navigating uncertainties and understanding a wide range of potential outcomes.
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Article 8 mins
Understanding Freeze Risk in a Changing Climate
Extreme cold and freeze were responsible for $15 billion worth of structural damage in recent years, as well as business interruption and supply chain impacts. We explore the threat chronic hazards pose and consider the influence of climate change on business.
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Article 7 mins
4 Steps to Help Take Advantage of a Buyer-Friendly Directors' & Officers' Market
The global D&O market remains soft, creating a favorable environment for buyers. With abundant capacity and increased competition, capitalizing on conditions now is critical as rates are showing signs of moderating.
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Article 17 mins
Five Big Human Resources Trends to Watch in 2024
It's never been more important for HR leaders to help shape and support the execution of business strategies. However, to be successful in today’s volatile world, HR teams must stand ready to understand and harness five fast moving trends.
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Article 9 mins
Managing Reputational Risks in Global Supply Chains
Supply chain disruptions can have serious reputational repercussions, causing plummeting shareholder value and diminished stakeholder trust. The potential fallout underscores the need for management strategies that collectively address these risks.
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Article 13 mins
Creating Operational Resilience Amid Growing Risks in the Food, Agribusiness and Beverage Industry
To feed a growing global population, FAB organizations must build operational resilience to overcome supply chain, cyber, geopolitical and climate risks.
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Article 10 mins
Seizing Opportunity in a Booming Pension Risk Transfer Market
Businesses considering pension risk transfer to mitigate volatility should prepare now to be well-positioned for market opportunities.
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Article 7 mins
How Collective Retirement Plans Help Support Financial Sustainability
Improving retirement plan governance is crucial duri