Pay transparency: What HR overlooks - and what the research says

What the EU Pay Transparency Directive requires of HR

The EU Pay Transparency Directive (2023/970) applies in principle to all companies, regardless of size, and requires that pay be determined based on objective and gender-neutral criteria.

It sets requirements in three areas:

Recruitment

Salary ranges must be disclosed in job postings or before the first interview. Asking about previous salary is prohibited.

Employee rights

Employees can request information about their own pay level and the average pay levels for comparable roles – broken down by gender.

Pay reporting

Companies with 100+ employees must report on gender-based pay gaps. If the gap exceeds 5% without an objective justification, action must be taken.

But here is what many overlook:

The directive does not prohibit pay gaps. It simply requires that they can be explained objectively, neutrally, and based on valid criteria.

The challenge is that many companies have pay gaps—they just have never formalized the explanation for them.

Younger generations are changing the rules for pay transparency

The pressure for pay transparency isn't just coming from the EU. It’s coming from the next generation of employees.

Mercer’s Global Talent Trends study shows a significant generational shift in attitudes toward pay and openness. 89% of Gen Z are comfortable discussing pay in the workplace, compared to only 53% of Baby Boomers. And 46% of candidates in general will not apply for a job that doesn't include a salary range in the job posting.

Gen Z and Millennials compare notes faster, ask more questions, and aren't afraid to change jobs if they feel underpaid—regardless of whether they are objectively well-compensated.

It isn't just the compensation that drives the experience. It’s the meaning and the explanation behind it.

And when they discover a pay gap, they look for answers. If managers aren't equipped to explain pay decisions, HR ends up managing the problems instead of preventing them.

But what should managers actually be able to explain? The answer requires that the company has done its homework first.

Job structure is what gives managers something to explain with

Pay doesn't have to be identical—but it must be explainable. And that is only possible if there is a clear structure behind it.

Without a job architecture that links job type, pay level, and salary bands, the manager has no objective reference point to rely on during conversations with employees.

When jobs, pay levels, and salary bands are consistently aligned, HR and managers can explain differences based on structure rather than gut feeling.

This is exactly what the directive requires and what employees are demanding.

A manager who knows which job family and pay level an employee is in, and what is required to move to the next level, can conduct an objective, trust-building salary conversation.

A manager without that structure cannot—no matter how good their intentions are.

AI as a shortcut to job structure and pay transparency

One of the biggest practical obstacles to getting started is the mapping work itself:

What are our jobs actually called? Which salary levels belong to which roles? And how do we categorize employees correctly?

This is exactly where Mindkey's upcoming pay transparency module makes a difference.

Based on existing HR data, AI can analyze patterns and suggest a job and salary structure, which HR then reviews and approves.

The AI acts as decision support—not a replacement for human judgment—and is built in line with the EU AI Act, with a focus on responsible use and transparency.

This means you don't have to build your job architecture from scratch in a spreadsheet.

For most companies, the data foundation is already there. Mindkey helps structure it correctly—thereby significantly shortening the path to compliance.

Pay transparency as a competitive advantage in recruitment

Companies that act proactively on pay transparency don't just win on compliance. They win on employer brand.

Companies that go beyond the minimum requirements and use pay transparency strategically experience lower staff turnover, faster recruitment, and real productivity gains.

With 46% of candidates not applying for jobs without salary ranges, pay transparency is already a concrete recruitment parameter—not a hypothetical future scenario.

Pay transparency is about trust—not just numbers

The companies that succeed with pay transparency aren't the ones that pay the most. They are the ones that can explain it best.

The EU directive sets the framework. But the real gain is internal:

Employees who understand the salary logic are more engaged, more loyal, and ask fewer frustrated questions.

Managers who can explain differences objectively build trust instead of losing it. It is not the compensation alone that makes the difference. It is the meaning behind the number.

And HR must create that meaning—preferably now, while there is still time to do it right.

Are you ready for pay transparency by January 2027?

Download our guide and get an overview of what needs to be in place—from job architecture and salary criteria to employee communication and manager preparation.