While the question of what pay elements to include in a pay equity analysis is often discussed, the EU Pay Transparency Directive (2023/970) brings renewed urgency and broader scope, prompting companies to assess their approach. One key concern is the upcoming requirement to share rewards details with regulators, Works Councils, and employees (Right to Information).
The Directive’s definition of “pay” is broad. Article 3.1(a) of the Directive states that: “pay means the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which a worker receives directly or indirectly (complementary or variable components) in respect of his or her employment from his or her employer”. The definition is also evolving, as EU Member States may further fine-tune what’s required as they transpose the Directive into law.
On one hand, it makes sense that organisations want to be comprehensive based on this definition. On the other hand, employers need to think pragmatically. Focus on the big picture and not on the free coffee.
At Syndio, we’ve helped hundreds of global enterprises run precise, practical, and compliant pay equity analyses, including what’s needed to prepare for the EU Pay Transparency Directive. Here’s a framework you can use to help decide what rewards to include in your analysis. You can use these practical guidelines as you prepare and wait for the final regulations from the EU Member States.
Start with the “big seven” rewards.
For years, global companies have used conjoint analysis to understand how employees value different rewards compared to what those rewards cost the company. In our experience working with those organisations, the vast majority of perceived employee value comes from these seven reward elements (“the big seven”):
- Base
- Bonus
- Equity
- Health
- Wealth (Retirement)
- Paid time off
- Allowances
In choosing which rewards to include when evaluating the gender pay gap, a best practice is to start with those seven. They are top of mind across multiple stakeholders and will for all practical purposes drive the size of your gender pay gap.
Don’t focus on universal benefits: They don’t impact the gender pay gap.
Another step to simplify is to focus on rewards that actually have a chance of causing a gender pay gap. A universal reward that is available to all workers will impact everyone the same and therefore won’t impact the gender pay gap. So, prioritize compensation or benefits elements that are not equally available to all employees.
Based on that criterion, many benefits, such as health benefits, can likely be deprioritized, unless you offer supplemental value to some employee groups based on their job.
Focus on discretionary benefits to compute the adjusted gender pay gap.
The root cause of unequal pay for equal work or work of equal value (also called the adjusted pay gap) always comes down to some level of pay discretion. Interestingly, such discretion only applies to a few organisational rewards. Think about it this way: the vast majority of organisations don’t provide supplemental health coverage based on managerial performance ratings or make child care benefits contingent on reaching annual sales goals.
Because of that, organisations should first focus on those rewards that involve managerial discretion when analyzing the adjusted pay gap. Typically, those are the core rewards base, bonus, and equity.
There are exceptions depending on how policies are applied. Some organisations compute bonus and equity using a simple equation that considers only company performance and employee grade — rendering those essentially non-discretionary. Conversely, some make so many exceptions to their car allowance policy that a neutral observer would consider those to be a discretionary reward.
Stay agile with technology as EU rules take shape.
This framework will help you take a pragmatic approach to selecting rewards components to include in your pay equity analysis — and comply with evolving regulatory rules. It will also lay the foundation for a good-faith effort to inform regulators, labor organisations, and employees about the unadjusted and adjusted gender pay gaps, without getting overwhelmed by the details.
As EU Member States transpose the Directive into law, requirements will evolve and your pay equity analysis will need to keep up. Syndio helps you stay ahead with flexible, expert-built technology that adapts to new rules, data, and calculations without starting from scratch. With Syndio, you can identify and address pay gaps over 5%, create fair pay budgets, automate reporting, and meet Right to Information requests with confidence.
See how Syndio simplifies compliance with the EU Pay Transparency Directive.
The information provided herein does not, and is not intended to, constitute legal advice. All information, content, and materials are provided for general informational purposes only. The links to third-party or government websites are offered for the convenience of the reader; Syndio is not responsible for the contents on linked pages.
