The EU Directive and global pay transparency 

Global pay transparency will soon be accelerating rapidly, with the EU Directive on Pay Transparency which puts compliance as a critical priority for US multinationals. With two-thirds of US-based multinationals feeling unprepared to meet the new requirements, the urgency to act is clear. The Directive not only sets a new standard for pay transparency but also mandates comprehensive reporting and accountability across various stakeholders, including employees, candidates and regulatory bodies.

However, beyond compliance lies a significant opportunity for organizations to enhance their talent and rewards philosophies to build trust, improve perceptions of fairness and ultimately enhance employee engagement and commitment. 

Organizations can leverage compliance as a catalyst for broader employee engagement, positioning transparency as a core component of their employee value proposition. Along with actionable steps to not only ensure compliance but also to enhance employee trust, engagement and satisfaction with compensation.

You will need to evaluate what is going to work best for your organization and your global workforce. Are you going to create a global strategy that will apply equally across jurisdictions (an approach taken by 16% of organizations) have global principles or minimum standards, with adaptations based on local legislation (the approach planned by half of organizations)?

The EU Directive requires a lot more than current legislation that is in place in the US and other territories. Even within the EU, each country will implement their own version of the Directive and have separate national bodies that will enforce the legislation.

This will require an agile approach to any pay transparency policy you implement, as specific requirements may shift in the coming years.

Central coordination of these varying requirements will be key to maintain a cohesive approach.

The EU Directive requires the use job evaluation systems for categorizing work — based on objective gender-neutral factors such as skills, effort, responsibility and working conditions. Formal job evaluation methodologies, such as point factor systems, have long fallen out of favor with the US — therefore, this will be a challenging requirement for US employers with global job architectures to manage.

This presents two critical challenges for US employers — do you embrace EU-compliant job evaluation methodologies globally — or create ‘shadow’ systems for use in EU countries only? Further, because organizations will be subject to ‘audits’ via joint pay assessments, documentation of job responsibilities and evaluations will be critical — and we know that two-thirds of US organizations listed ‘maintain current and comprehensive job content’ as their top challenge.¹

While this will be a challenge for US multinationals, it also presents an opportunity to enhance pay governance globally to ensure fair and equitable pay decisions.

While all organizations provide employees with benefits as part of their employee experience, are you able to assign a value to everything you provide an employee as part of their ‘total pay’?

As defined in the EU Directive, “pay” is anything paid by employer, in cash or in kind, whether directly or indirectly provided. Benefits, as well as salary and bonuses, will need to be valued across each country by category of worker and in the event of any “unjustified” inequities, may need to be harmonized to meet pay transparency regulations.

The potential scope of this “pay” definition is very broad and there are many elements which will need to be considered. Particularly when considering retirement plans, healthcare, cars and other allowances, benefits may represent a relatively material portion of Pay in many countries.

The best time to start preparing for these changes was yesterday but the second best time to act is now.

Now that the Directive has passed, it will be transposed by EU Member States by mid-2026 at the leatst, and reporting will begin in 2027 based on 2026 data.

Some organizations will need to make larger shifts than others but almost all will require some action. Either way, your window of time to make changes is quickly closing.

Pay transparency is not a passing fad so it is important for organizations to recognize where they are on their journey and set a roadmap to move forward that will help them reach where they want to be.

Mercer’s international network of experienced professionals combine their local knowledge with international reach to put a robust strategy in place, turning your challenges into opportunities.

Our market leading global advisory teams can support you with readiness for the EU Directive around the full-scope of requirements, or in areas such as: