In this edition of our webinar series with the Food and Drink Federation we discussed the topics of pay transparency and pay equity, which have grown from a HR challenge into a C-suite consideration with the introduction of new global legislation. Aon’s Global Risk Management Survey highlighted “Failure to Attract or Retain Talent”, “Damage to Reputation or Brand” and “Regulatory or Legislative Changes” within the top ten risks for food and drink organisations. However, while failure to adopt a forward-thinking approach on pay transparency and pay equity would have implications for these business risks, organisations have been slow to adopt pay transparency measures.
Aon’s Pay Transparency Study results, published in Q4 2024, found that only 18% of companies feel they are ready for pay transparency, while 63% of companies do not communicate salary ranges to employees. Assessing and understanding an organisation’s pay gap, undertaking a pay equity audit and moving towards pay transparency enables strategic planning and the journey towards pay parity.
Note: Definitions
Pay transparency is the practice of openly disclosing compensation for both current and prospective employees in the pursuit of pay parity.
Pay equity compares the pay between men and women (and other groups) doing the same/similar work.
Pay gap is the comparison of the average pay between all working men and all working women (and other groups).
Pay parity is the practice of paying employees fairly, without discrimination, regardless of gender or other characteristics.
What does new legislation mean for FAB businesses?
New pay transparency regulation and legislation is being introduced with the aim of closing global pay gaps. Gender pay gap reporting legislation has been in place since 2017 for companies with more than 250 employees in the UK; following this, the UK government introduced a pilot scheme on pay transparency in 2022.
The EU Pay Transparency Directive was formally approved by the European Parliament and came into force in June 2023. This requires EU member states to report on the gender pay gap by category of workers (not average) by 7 June 2027 – using pay data from 2026.
The Directive allowed EU member states three years to transpose its provisions into national laws, and states that:
- Job applicants will have the right to receive information on the initial pay level/range for any advertised position and employers will not be able to ask about previous or current pay of any job applicant.
- Employees will have the right to request, and receive in writing, information on their individual pay level and the average pay levels for categories of workers performing the same work as them or work of equal value to theirs.
- Employers will need to ensure that they have a clear understanding of work of equal value in their business and be able to demonstrate that they include gender-neutral analytical job evaluation systems.
- Employers with at least 100 employees will have to publish information on the pay gap between female and male workers. If a gender pay gap exists of more than 5.0% then employers must work with their workers representatives to conduct a joint pay assessment (i.e. an equal pay audit) and develop a gender action plan.
How can organisations prepare for pay equity?
Only 51% of companies have conducted an independent pay equity analysis.1
Conducting a pay equity analysis helps to explain pay gaps by controlling for factors such as department, experience and level. By taking the initial unadjusted pay gap between men and women and applying this process of multivariable regression to explain legitimate factors for differences in pay, organisations can see their “unexplained” pay gap. Statistical significance in these results may reflect unconscious bias and discrimination in compensation decisions.
Aon recommends a range of remediation option to meet pay equity requirements, including:
- Reducing the organisation’s pay gap to below 5% for each category of workers, in line with the EU Pay Transparency Directive.
- Adjust outliers to align with their peer group, using the pay equity analysis to raise the pay of those who receive recognisably less than their peers.
- Remove statistical significance to eliminate any gender/ethnicity discrimination in pay.
- Reduce the pay gap to a threshold that matches the client’s ambition.
What are the challenges in achieving pay transparency and pay equity?
Business Structure
- Weak job architecture (job grades/ level allocation & framework).
- Unregulated compensation practices.
- Differences in bonus and benefit schemes for employee groups.
- Lack of in-house resources.
Data
- Difficulties in obtaining consistent and comprehensive employee data.
- Discrepancies in employee data.
- Inconsistencies in data selection for analysis due to data availability differences across entities/countries.
Business Focus
- Unclear remediation priorities and decision-making process on budget allocation.
- Pay transparency challenges:
- Translating pay equity results into meaningful message for leadership.
- Preparing team managers for pay equity/ transparency discussions with their team.
- Communicating results internally and externally (alignment with regulation vs. talent and branding).
What further actions can organisations take?
The journey towards pay transparency and pay equity will be a lengthy process for most organisations, though the following questions and actions can inform a considered approach.
- What can you do now to improve your gender pay gap? What are your current communications saying on equal pay?
- Conduct a pay Transparency readiness assessment to understand the current situation, gap, and action plan.
- Have you undertaken an independent equal pay audit?
- Prepare the Board, C-Suite and other stakeholders for further actions.
Speakers
Emily Page, Senior Principal, Talent & Reward Advisory
Kai Siekmeier, People & Analytics Consultant
To learn more, contact Richard Fawcett via [email protected] or LinkedIn.
1 Aon’s Pay Transparency Study, 2024
These are the views of Aon. They do not necessarily reflect the views of The Food & Drink Federation.
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