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.
Key Takeaways
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Pay transparency continues to gain momentum, as more jurisdictions pass regulations.
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Increasing transparency requirements are also moving companies toward equity in pay.
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The EU Directive on Pay Transparency marks a sea change that will affect companies worldwide.
The rise in pay transparency and pay equity initiatives around the world is catching up with a cultural shift, especially among younger employees. Where it was once considered impolite or taboo to publicize salary information, a movement has grown around the notion that shielding the numbers has allowed companies to reinforce and exacerbate gender gaps in pay. Thus, regulatory bodies across Europe and North America are mandating more salary disclosures around pay.
Arguably the most sweeping pay transparency regulation is the European Union Directive on Pay Transparency. The directive requires member countries to pass legislation mandating greater transparency and equity in pay.
There is not a single argument why — for the same type of work — a woman should get paid less than a man. Not a single argument, not a single one […] It's a basic principle of equality, it’s finally cast into law. Equal work deserves equal pay.
Taken collectively, these regulations aim to address wage disparities, promote fairness and empower employees to make informed decisions about their careers. Compliance is important — and many multinational companies may not be fully aware of the degree to which they must comply with the EU Directive or other regulations in jurisdictions where they are hiring.
How can companies navigate the emerging patchwork of pay transparency regulations?
The State of Global Pay Transparency
Here’s a roundup of some of the key pay transparency regulations happening around the world.
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European Union (EU)
The biggest, and potentially most impactful, regulation is the EU Directive on Pay Transparency. Its goal is to reinforce gender pay equity. In April 2023, the European Union adopted a pay transparency directive aimed at closing the pay gap between men and women. While not binding legislation itself, the directive requires member states to pass new legislation by June 2026 that will require all companies with 100 or more employees in Europe to comply with a set of stringent rules, including, but not limited to:
- Providing pay ranges to job applicants
- Providing information on the criteria for determining pay and pay progression to all workers
- Reporting and sharing information on the gender pay gap in the organization overall and in distinct categories of jobs with workers
- Working with employee representatives to assess the causes of pay gaps and remedy those gaps
Under these new regulations, companies will be required to go beyond paying the same for identical work. Rather, a set of gender-neutral job evaluation methodologies and classifications will need to be developed and pay equity will be required across similar categories of jobs. The criteria will include skills, effort, responsibility and working conditions. Employers must not undervalue soft skills or reflect gender biases.
The penalties for noncompliance have not yet been spelled out, but the directive requires them to be “effective, proportionate and dissuasive penalties.” Laws allow employees who have suffered from inequitable pay practices to recover damages or reparations. Victims of pay discrimination would be entitled to compensation, and the burden of proof would fall to the employer once a claim of discrimination has been made. This means companies must have documented evidence to show they are not engaging in discrimination.
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United States (U.S.)
More than 20 U.S. states, and nearly two dozen cities and counties, have restrictions on asking applicants about their salary history. Ten of those states also mandate that all job listings contain a salary range. Some apply to private business, while others only apply to governmental entities. Additionally, some restrictions only apply until an offer is made, while others carry all the way through the hiring process.
Some U.S. companies think of pay transparency as an EU concern, or as something that will never actually affect them. Certain industries are also reluctant to publicize salary information, as they fear a backlash from clients and the loss of what they see as a competitive advantage. But more than half the U.S. population lives in places with some form of regulation. This, coupled with the growing compliance issue and social movement toward pay transparency, makes such assumptions seem unwise.
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Canada
While there is no national requirement for pay transparency in Canada (with the exception of some higher-salaried government jobs), adopted legislation in British Columbia requires companies to disclose pay ranges and prohibits asking candidates about previous pay. Similar legislation has passed in Newfoundland and Labrador, as well as Prince Edward Island, and is being considered in Ontario. Companies in these areas are also required to publish wage gap information.
Canada also has stringent requirements around job evaluation for public employees. These requirements mandate that gender neutral standards are set to establish the appropriate classification level for jobs.
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United Kingdom (UK)
Since 2017, the UK has had gender pay gap reporting requirements in place. Because so many companies in the UK are multinational and have a presence in the EU, there is speculation that the UK will eventually adopt elements of the EU directive. These could include:
- Publishing pay ranges in job listings
- Giving all workers information on the criteria for determining pay and pay progression
- Compelling companies to provide equal pay for equal value
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Japan
The government’s 2022 Framework Policies1 plan requires companies with more than 300 employees to calculate women’s pay as a percentage of men’s pay across all employees. The same information must then be broken out by regular and irregular (e.g. part-time, contract and contingent workers) employees. The gender pay gap must be disclosed annually and within three months following the end of the fiscal year. These percentages must be posted on the company’s website. Beginning in January 2023, gender pay gap data was also required in annual securities reports for listed companies. Smaller companies are currently exempt from pay gap reporting, but this could change in the future.
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Australia
Australia banned pay secrecy in December 2022,2 meaning companies are not allowed to prohibit employees from discussing salary. Employees have the right to share (or not to share) information about their pay with each other. Additionally, companies with 100 or more employees must report on their gender pay gap annually,3
The Impact of the EU Directive on Multinationals
Any multinational company with a certain number of employees in one or more EU member states will need to comply with the directive and related laws of each EU state in which they have employees.
While the EU directive will not apply outside the EU, other countries — especially the UK — have used the directive as a model and may implement many of its elements. The EU directive also reflects global trends that other nations around the world, including some U.S. states, may adopt. Multinationals should assess pay practices globally to ensure they are prepared for these changes beyond Europe.
Don’t let the deadline date lull you into a false sense of security. This shift is going to take time, and companies need to start preparing now to make sure their new systems are in place and they’ve worked out all the details.
Six Steps to Prepare for Pay Transparency
Preparing for the coming changes may seem like a daunting task; these are big deviations from the culture around pay that most companies have built. But by asking tough questions and following the lead of a trusted advisor, companies can make a smooth transition.
1. Assess compliance with regulation. Determine which laws and regulations apply to your business — and which segments of your employee population. Consider whether voluntary disclosure or compliance with certain laws makes sense, particularly if laws apply to certain segments of the employee population and not others.
For example, as part of the EU Directive, job evaluation methods to compare and assess pay levels must be based on gender-neutral criteria and include gender-neutral job evaluation/classification systems.
2. Consider your pay transparency foundation. Start with an updated job architecture to make sure you have jobs and people in the right roles in the first place. This will serve as the foundation of pay equity. You could also conduct an accelerated salary structure design initiative, which many total rewards teams are dropping everything to complete. Part of this requires ensuring you have clear processes, guidance and governance to underpin rewards, recruitment, talent and promotion decisions.
3. Create a roadmap for change. Conduct an internal pay equity audit and ensure that follow-up audits are scheduled regularly. Determine if pay equity gaps are statistically significant, and if so, examine the root causes.
Next, move on to remediation strategies. Determine who is eligible for equity-based adjustments, and how much closing the gaps will cost. After equity gaps are remediated, decide if hiring and promotion practices need to change. Revisit your pay equity analysis with a focus on what it is you are paying for. Is it true that only fully proficient employees are paid above the midpoint? What else drives pay? Is it tenure or experience, or education or reporting lines?
4. Prepare people managers to communicate on this issue. How ready are people managers to handle these tough questions from employees? Do all managers have a solid understanding of how the pay program works?
Communication will be key. Offer simulations and role play tough conversations to make sure your managers are answering difficult questions effectively. Ensure all people leaders are well educated on the process for setting and moving pay.
5. Address the bigger philosophical question around transparency. Understand your organization’s approach and focus on being prepared. Regardless of current requirements, take proactive measures: perform a pay equity analysis, identify existing gaps, revisit your job architecture and salary levels to improve your reward programs and implement continuing manager training. Even if your organization is not subject to specific pay transparency laws, lay the foundation for future disclosure and consider whether proactive disclosure makes sense for your business. For example, are your competitors disclosing salary ranges? Do leaders think it will be beneficial for talent acquisition efforts to have this level of pay transparency?
6. Look at the full picture of pay transparency. Posting salary ranges is probably the most visible step in pay transparency, and the one that requires the most preparation. But by no means is it the only step. Being prepared to discuss and, if necessary, close a pay equity gap requires a culture change that may challenge many organizations.
Pay Transparency Opens the Door to Opportunities and Challenges
There are genuine business advantages to pay transparency. This truth sometimes gets lost in the compliance discussion. Pay transparency can eliminate the applicant guessing game that often costs time and money when candidates’ expectations don’t match the salary range a company is offering. However, for those companies that are not properly prepared, pay transparency can also cause short-term difficulties. The burden of workers knowing what the salary range for a position is, and then knowing where they stand on that range, usually falls on supervisors. They will be the ones fielding complaints from workers whose pay is not in line with others.
There are a few easy-to-see challenges that the pay transparency movement presents. Compliance with regulations may:
- Lead to wage inflation and increase costs
- Lead to a loss of talent and talent wars
- Increase risk of employee relations issues including grievances
- Trigger new waves of equal pay claims
- Highlight weak or nonexistent frameworks, processes and data (e.g., job evaluation methodology, regular pay equity audits or sufficient compensation market data)
- Reveal ambiguous pay policies around pay setting, job evaluation and leveling, pay scales and pay governance
What do these challenges have in common? They’re all the by-products of poor preparation or existing pay equity issues. Companies that are prepared for pay transparency and have a solid foundation of pay equity, can expect the following benefits:
- Increased fairness and equality, improving diversity, equity and inclusion (DE&I) and pay parity between men and women
- Identification of underlying issues within the culture of the business
- Removal of embedded bias in recruitment practices
- A rise in talent attraction and retention
- Improved trust, loyalty, performance, retention and brand recognition
- Increased motivation for employees to develop their career
Beyond the compliance aspect, companies see pay transparency as a component of their commitment to DE&I and pay equity. Pay transparency is also viewed as a positive driver of retention and culture — a key asset in today’s evolving workforce and war for talent. Similarly, the open communication connoted by pay transparency resonates with many younger workers.
Being compliant and transparent about pay is a big step, but it’s only the first step toward pay equity. And while equity may seem like an elusive goal, it’s one that will bring a host of competitive advantages. Companies that become known for paying their workers equitably, even if that wasn’t always the case, will be able to compete for talent in a competitive marketplace.
Learn more about how Aon helps organizations prepare for pay transparency and pay equity.
General Disclaimer
This document is not intended to address any specific situation or to provide legal, regulatory, financial, or other advice. While care has been taken in the production of this document, Aon does not warrant, represent or guarantee the accuracy, adequacy, completeness or fitness for any purpose of the document or any part of it and can accept no liability for any loss incurred in any way by any person who may rely on it. Any recipient shall be responsible for the use to which it puts this document. This document has been compiled using information available to us up to its date of publication and is subject to any qualifications made in the document.
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A rapid rise in medical plan costs is being driven in part by high-cost claimants — a high-risk group that disproportionately accounts for a large amount of healthcare costs. Here are strategies for addressing this issue.
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Article 9 mins
Four Steps to Implementing an Effective Online Benefits Platform
Online benefits platforms are a key component of the overall employee value proposition. As employers maximize the ROI of their people spend, here are four tips which may assist with implementing a successful online benefits platform.
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Article 8 mins
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 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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