EU Transparency: The Countdown Begins

In less than three months, the European Union’s new regulations will force around 50,000 companies to significantly increase their disclosures around pay and hiring practices. But bigger changes should already be in progress, experts say, because so many companies need to substantially adjust not only what they disclose about their pay practices, but also what those pay practices actually are. “Hiring practices must change quickly. The next three months are critical,” says Tom McMullen, leader of Korn Ferry’s North America Total Rewards expertise group.

Starting on June 7, all employers must disclose a role’s starting salary or salary range in a job advertisement or, at the latest, prior to a candidate’s first interview. Firms also won’t be allowed to ask candidates about their previous pay history. Then, starting in 2027, companies with 100 or more employees will be required to submit gender-pay-gap reports to the EU demonstrating that their average pay to male and female workers, in any category, differs by no more than 5%. If the gap is wider, the company will either have to close it within six months or publicly justify it.

Pay transparency has been a hot topic for several years now; many individual countries, states, and even cities in the US have already instituted rules around it. It’s a big cultural shift, because workers of past generations have rarely disclosed their pay to colleagues. But younger workers do not observe the same taboo, and expect fairness and openness in pay decisions, McMullen says.

The EU’s new rules represent the biggest regulatory push to date, in that they impact so many firms across such a wide geographical area. For the vast majority, the new policy will be a big departure. In a Korn Ferry survey from October, only 14% of firms said their pay strategies are well-known externally. “Companies anywhere in the world will have to be able to defend their pay practices analytically, financially, and culturally,” says Claire Field, a Korn Ferry senior client partner and pay-equity lead in Europe, the Middle East, and Africa. 

Indeed, the number of firms that will actually be ready for these disclosure requirements is an open question. As of last fall, only an estimated 16% of firms were prepared to do so. Companies have struggled to prioritize pay transparency over other issues (such as AI adoption); they’ve also hesitated out of a fear that increased pay visibility could trigger uncomfortable questions (such as “Why is my role paid less than that one?”).

Companies that find themselves behind on the EU rules should focus on “the practical,” Field advises. That means making sure that their data on pay is reliable, that their job roles are consistently defined and evaluated, and that their pay communication and governance plans are usable. Those communication plans are essential: Organizations must have managers who can confidently discuss pay decisions with both existing employees and candidates, Field says. “Transparency without clarity can create confusion and risk,” she observes.

Firms that can tell a good story about their pay programs will likely pick up the talent they need, experts say, even if they’re not offering the highest salaries. Pay transparency isn’t just about compliance; it’s about treating people fairly—which employees find appealing, and which firms can use as a point of engagement. “Organizations that lead on transparency can build trust,” McMullen says.

Learn more about Korn Ferry’s Total Rewards capabilities. 

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