2025: a year of pay ‘un-transparency’?

Blog posts

7 Jan 2025

Dr Duncan Brown, Principal Associate

Follow @duncanbHR

As the clock runs down on the implementation of the EU’s Pay Transparency directive, and the subject dominates listings of HR priorities for 2025, Duncan Brown reminds us of an experiment in real pay transparency and the benefits and risks involved.

Pay transparency in employment legislation

My New Year has opened with a stream of emails from employment law firms and consultancies warning me of the risks and costs of ignoring the EU Pay Transparency directive, which is due to be fully implemented by member states by 2026. ‘Pay transparency’ is also near the top of just about every survey polling HR leaders’ priorities for 2025, ‘a necessity’ that should be in our Top 5 priorities according to one I read just before Christmas.

This is despite the UK no longer being in the EU, and that the still relatively new and nervous Labour government is keeping a clear, they hope, voter-retaining distance from Europe in its policies. It has very modest ambitions itself in this area – committing only in its forthcoming Equality (race and disability) Bill to a gentle and fairly straightforward extension of the existing gender pay gap reporting requirements to cover ethnicity and disability.

Even if Labour did decide to be more ambitious on pay transparency, it might well choose to do it employing a simpler and looser US-model, rather than copying the complex and somewhat confusing EU mechanism. At least five more US states are lined up to have pay transparency laws take effect in 2025, employing a requirement to publish pay rates when recruiting for jobs; and a ban on salary history discussions when engaging with candidates.

The UK reality: pay ‘un-transparency’

It is somewhat ironic that these firms are seeking your custom when concerns and pressures from our corporate legal and risk functions help to explain why, in reality, HR has actually supported the trend in the UK over the past 30 years towards greater pay secrecy, rather than more openness. Remarkably, this continues to be the direction of travel for many companies.

The 2024 rewards study from CIPD and ADP concluded that ‘pay transparency is limited’, finding that:

• only 41% of employers published pay rates or ranges in external job adverts;
• just 18% post specific salaries in internal job adverts;

• the only pay inequality analysis generally carried out is the legally-mandated gender pay gaps (44%). Fewer carried out equal pay audits (32%) and ethnicity pay gap analyses (28%).
• just 54% of organisations check that employees understand their pay, despite the finding that their requests for information about pay have increased.

Whatever form any legal requirements take, publishing a few macro-statistics about your pay gaps because you are forced to is miles (or kilometres) away from full pay transparency and fully realising the benefits of it, rather than just trying to shield yourself from its legal and financial risks.

Real pay ‘nudity’

I was reminded of a rare example of what we might call full ‘pay nudity’ when over the break I stumbled onto a recording of a rare experiment in this, which I advised on. It formed the basis of an excellent Channel 4 ‘fly-on-the-wall’ documentary at the well-known ‘posh plumbers’ Pimlico Plumbers. You can watch it here.

Employees at the company all signed a waiver to their legal individual data protection rights (another law which overly-secretive HR functions hide behind to justify avoiding pay transparency). Then, after being interviewed about their perceptions of pay and pay management there, they each revealed their level of pay to their colleagues.

Opening this pay ‘Pandora’s box’ in an all-employee meeting, of course, initially produced some extreme and entertaining reactions. But the key learning for HR and reward professionals is what happened next.

The firm’s multi-millionaire founder Charlie Mullins specified that he wanted the overall pay bill to stay the same. But he was happy to accept changes in relative pay levels agreed between employees.

Rather than produce the argumentative and anarchic free-for-all you might have anticipated, in reality this had some remarkable (but actually quite normal in more transparent pay environments) effects.

First, perceptions of pay and especially pay fairness, a critical determinant of satisfaction with pay, markedly improved.

But second, some higher-paid employees voluntarily agreed to donate some of their earnings to their lower-paid colleagues (mostly female of course) once they watched just how much their jobs involved.

A higher-earning (male) team agreed to share a portion of their group’s incentive earnings with the women working in the customer service centre who were not eligible for any bonus scheme (again reflecting a common situation nationally, where the gender pay gap is larger for variable incentive earnings than for fixed base pay).

Mullins concluded, after agreeing the changes and to a better managed and more open approach to pay in the future, that: ‘Trying to create a fairer pay scheme where employees reveal their salary to each other was always going to be a risky strategy … and I won't pretend that during the process there weren't a few shocks, a few rows. But there was also a lot of happy people and a fair bit of positivity.’

Progressing real pay fairness and transparency

Neither I nor the EU’s legislators are of course recommending that you gather all of your employees in a big room and get them each to write their salary down on a sticky note and post it up on the wall, like at Pimlico Plumbers.

But as the European Council explains:

‘The implementation of the principle of 'equal pay for equal work or work of equal value' – an EU right since 1958 – remains a challenge today: in the EU, women are still on average paid 13% less than men. Increased pay transparency aims to combat pay discrimination and contribute to closing the gender pay gap.’

As we start a new year marking 50 years since the UK’s original Equal Pay Act, which more than halved the UK’s national gender pay gap overnight,  the UK still has a 13.1% gender pay gap according to the latest ONS data.

Hopefully the regulations should stimulate more Boards and HR functions to come out from behind their legal and cultural comfort-blankets, in order to realise the benefits of pay transparency.  As our research hub at IES demonstrates, other actions by employers are essential, ranging from fairer and more objective recruitment and pay management processes, through to improved career and talent management.

IES recommends at a minimum you need to take five straightforward steps now. These are to:

• design and communicate pay structures and pay ranges internally, supported by robust job evaluation;
• publish your pay rates and ranges externally when recruiting;
• ban salary history discussions in your recruitment and restrict management freedom in setting salaries for recruits;
• communicate much more regularly and extensively with your workforce on pay;
• calculate pay gaps, analyse their causes, and implement action plans to ensure their removal over time.

If you would like to discuss any issues around pay gap reporting our consultants are here to help, contact: askIES@employment-studies.co.uk

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Any views expressed are those of the author and not necessarily those of the Institute as a whole.