Rising Pay Transparency Legislation and Its Impact Across the Globe

All eyes are on pay transparency. The growing move toward stricter salary disclosure laws is making waves around the world at the same time that many employers are refining their total rewards and talent strategies to attract and retain top talent in a new world of work. Laws to strengthen pay transparency are emerging in New York City, California, the European Union (EU) Commission and many other jurisdictions. In some cases, companies are proactively posting salary ranges even when not required by law, according to Bloomberg.

The momentum toward greater transparency is so palpable that Inc. Magazine described 2022 as “the year of pay transparency,” and not only because of more requirements. Commitments to diversity, equity and inclusion (DE&I) and pay equity are just a couple of the underlying factors. 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. Even more, open communication resonates with many younger workers.

 

Here is a closer look at the latest regulations across regions and how companies can best prepare for challenges that may arise.

North America

Laws requiring firms to disclose pay ranges to job candidates have been enacted in several states and cities throughout the United States (U.S.), including California, Colorado, Connecticut, Maryland, Nevada, New York City, Rhode Island and Washington. In New York City, job seekers have the ability to find out what some of the top companies in the world are paying for certain roles (read more in our article, “Should Employers Disclose Salary Ranges to Job Candidates? New York City is the Latest to Say Yes.”).

California just announced similar legislation (SB 1162), requiring employers with 15 or more employees to include pay scale in job postings starting January 1, 2023. The state already prohibits employers from asking applicants about their salary history and requires a pay scale be provided to an applicant upon reasonable request. Under the new law, companies will need to include a pay scale at all times for any job posting, as well as currently filled positions upon request. The unique aspect of the California law is that it empowers even incumbent employees to ask for the pay rate of their job. This update has been a tipping point for many companies as they scramble to prepare and check the market competitiveness of their pay ranges for certain roles.

Aon’s Pay Disclosure Pulse Survey, conducted in October 2022 with a total of 255 U.S. participants, found that 49 percent of firms identified pay equity analysis as one of the talent initiatives to consider in light of new pay transparency laws. Other initiatives under consideration include implementing formal salary grades/bands, job architecture and changes to pay mix.

Driven by similar factors, the Canadian landscape sees surging trends toward pay transparency as well, with many requirements already in place or under development. Transparency in Canada is part of a longstanding and evolving labor equity framework. This is especially true for federally regulated workplaces that are now mandated to report salary data for all workers to show aggregated wage gap information. This new salary data requirement was included for the first time in annual reporting on employment equity due on June 1, 2022 (capturing 2021 calendar year data).

The Prince Edward Island government recently passed a pay transparency requirement that has been in effect since June 1, 2022. Newfoundland and Labrador passed pay transparency legislation on November 9, 2022, directed to public sector employers only. Sections dealing with pay equity are scheduled to take effect on April 1, 2023, while sections related to transparency will come into effect on another date that has not yet been announced. British Columbia is also currently developing pay transparency legislation. Finally, the Ontario Pay Transparency Act, 2018 (PTA) was passed, but has yet to become law pending the government’s consideration of the public’s response.

United Kingdom (UK)

Since 2017, the UK has had gender pay gap reporting requirements in place. While there are currently no laws in the UK that require businesses to share salary details of their employees, the government recently launched a pay transparency pilot scheme that encourages organizations to sign up and display salaries in all of their job ads to help close the gender pay gap.

The UK announced this new initiative very fittingly on International Women’s Day. The effort further indicates the region’s dedication to providing opportunities for women to negotiate pay on a fairer basis, close existing salary gaps and attract female talent to open positions. The pilot is set to last between six to 12 months.

Europe

In early 2021, the EU Commission submitted proposals for a directive to strengthen the application of the principle of equal pay for work of equal value through increased pay transparency and enforcement mechanisms. The focus is on pay differences between men and women. The gender pay gap across the EU is estimated at 14 percent and progress to close this gap has been slow. The EU sees more rigor around transparency as the most effective way of forcing firms to take proactive action.

The directive states that all companies with at least 50 employees must disclose information that makes it easier for those working for the same employer to compare salaries and expose any pay inequalities. Pay, as defined by the directive, covers more than just base salary. It also includes bonus, overtime, allowances, sick pay and occupational pensions. If a gender pay gap of more than 2.5 percent exists, employers must conduct a pay assessment and develop an action plan. To put this into perspective, Spain uses a threshold of 25 percent.

 

The EU Parliament has now officially approved its position and discussions are currently underway with EU Member States. Once adopted, member states have up to two years to implement the legislation within national law. We anticipate late 2023 or early 2024 to be the likely date for publication.

Although some countries already have pay equity mechanisms in place, they will have to check that they meet all new directive terms. For those companies starting from scratch, this move is substantial and will add pressure to deliver immense changes very quickly. It’s critical for firms to start preparing now.

Asia-Pacific

Many Asian countries are more focused on broader DE&I and environmental, social and governance (ESG) issues rather than pay transparency and pay equity specifically. Singapore, for example, recently proposed a list of core ESG metrics to assist companies and investors in providing and accessing an aligned set of ESG data. Each metric is mapped against globally accepted reporting frameworks. Included in this is disclosing gender composition at a firm; however, pay is not a part of the equation. Malaysia also revised its DE&I policy, which appoints employees and senior management based on merits, skills, knowledge, expertise, experience, professionalism and integrity regardless of gender, ethnicity and age — with the goal of maximizing performance and effectiveness of the organization.

 

Japan is one of the closest countries to focusing on compensation disclosure with its Framework Policies plan, which was announced in June 2022. This requires companies to increase disclosure of their gender wage gap by listing it on company websites and annual securities reports. According to the latest revisions, a company with more than 301 employees must disclose its wage gap, which is calculated by dividing the average annual wage of women employees by the average annual wage of male employees. Wage gap disclosure should also be separated by category and on a nonconsolidated basis.

Guidance for Addressing Growing Disclosure Mandates

While the potential outcomes of pay transparency are positive, there are many concerns and challenges that companies will face to successfully comply.

First, think about the salary ranges themselves. Are ranges well established and ready to be shared both internally and externally? Some businesses already have established and well-maintained salary structures. In fact, 90 percent of companies surveyed by Aon said they at least have salary ranges in place.²

 

Next, consider existing employees’ positions in their salary ranges. Are they currently paid in a way your organization would be able to defend? When they ask to see the range of pay for their job, will it be easy to provide and explain where they are in the range — and why? Employee questions can quickly expose any real or perceived inequities.

 

Then, consider manager preparedness. How ready are 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.

 

 

Finally, address the bigger philosophical question around transparency. Once companies comply with the laws in each jurisdiction, should they just treat everyone the same whether their state requires it or not? Or should organizations do the bare minimum as required?

Take action now

As firms embark on a journey to greater pay transparency, clear communication with employees, prospective employees and people leaders will be a key to success. With momentum in many areas of the globe, pay transparency laws are expected to spread.

Companies should look at this as an opportunity to improve longstanding pay practices, identify existing pay gaps, build trust and show their true commitment to their people and a future of improved diversity, equity and inclusion.

For more information about how to address pay transparency or pay equity laws and best practices, please get in touch with our team at humancapital@aon.com.

¹ Secure Jobs, Better Pay Bill Introduced into Parliament, November 4, 2022
² Aon’s Pay Disclosure Pulse Survey, 255 U.S. companies across industries, October 2022