Have you convinced your boss yet? Groups get the best deals 🎟️ Buy now before price increase →

This article was published on April 6, 2022

The EU wants to make all salaries transparent — here are 3 pros and cons

A deeper look into the potential impact on employees and employers

The EU wants to make all salaries transparent — here are 3 pros and cons

Imagine you could find out exactly what your coworkers earn. You wouldn’t need to subtly bring up the conversation over Friday night drinks. You wouldn’t have to guestimate how much of a raise you should ask for during your annual review, and you would know exactly how much your role is worth when you decide to apply for a new job. Wouldn’t things be, well, easier?

Thanks to a new plan by the European Commission, you might be able to find out what Katie from sales makes or even Paul from HR. At the very least, you’ll be able to get a ballpark figure. This ground-breaking proposal means that we could be about to enter an unprecedented period of wage transparency.

If the new measures are adopted, EU employers with over 250 employees will be required to publish pay gap data (British companies have already been doing this since 2017). Under the proposed EC plans, workers will also have the right to request salary information broken down by gender and work level. Employers will have to provide salary ranges on job ads and will be banned from asking questions about pay history.

It sounds pretty promising, right?

To get a real picture of what these new measures could mean, it’s important to look at both the pros and the cons. Here’s what you need to know.

The <3 of EU tech

The latest rumblings from the EU tech scene, a story from our wise ol' founder Boris, and some questionable AI art. It's free, every week, in your inbox. Sign up now!

Pro: The gender pay gap will get smaller

This one’s a bit of a no-brainer. It’s no surprise that these measures will help reduce the gender pay gap. After all, if you can research the average salary of a role, and find out exactly what you’ll be earning before you even apply, men and women are much more likely to be paid the same amount.

During a study by HEC Paris Business School, the salaries of 100,000 academics were posted online and were made easily accessible to the public. As a result, the gender pay gap of professionals in this field was reduced by up to 50%.

Con: Productivity might suffer

However, a study conducted at the University of Michigan found that when taking on a task that involved counting dots, participants performed worse when they knew they were being paid less than others. So what does that actually mean?

Well, if the income gap between excellent employees and mediocre ones is small, it will be hard to motivate staff members. The knock-on effect of this is that the quality of work could eventually start to suffer and we might see a decline in workplace morale.

Pro: Fewer salary negotiations

Let’s face it, no one likes salary negotiations. You’ve crafted a killer CV, aced your interviews and maybe even completed assessments or tasks. The company finally decides to make you a job offer, then you’re faced with the dreaded stand-off when it comes to salary.

Under the proposed regulations, candidates would know exactly what they could be earning from the get-go. It also means that you won’t waste time interviewing for a job that is beneath your pay grade ever again.

Con: Companies might lose their top performers

Companies might be reluctant to make their salaries transparent because it could potentially make it harder for them to hire new staffers.

For example, a developer is interviewing at two different companies, let’s call them company A and company B. The developer really likes company A and is close to signing the contract. To stop this, company B can swoop in and offer them £10,000 more (because they know exactly what company A is paying).

It can also make it more difficult for employers to retain staff, which during the aftermath of ‘The Great Resignation’ is more important than ever.

Pro: Clear career development

Research by UCLA economist Ricardo Perez-Truglia challenges the common-held assumption that wage transparency is good for employees but bad for businesses. In his research, when employees found out their managers were paid more than they thought originally, they were not mad at the company. In fact, they actually worked harder.

The staff members were able to use this salary average as motivation and something that they could work towards. Rather than demoralizing employees, it actually gave them a boost. This, in turn, could lead to employees having a clearer career path and goal.

Con: Not everyone will be open to sharing

Did you know that since 2001, Norway has had complete pay transparency? This means any citizen can go online and see another citizen’s salary (based on the amount of tax they pay). The phenomenon is so popular that it’s been dubbed ‘tax porn’. However, not everyone will be happy about their salary being available online.

In fact, a study by Loyola University in Chicago found that younger employees are more willing to share their pay information than their older counterparts. So while Gen Z are happy to shout their salary from the rooftops, baby boomers might not be so enthused.

If the new proposal is adopted, member states will have two years to implement the legislation in national law. Will we see pay transparency in 2024? Time will tell.

If all this talk of wage transparency is inspiring a change of role, find some inspiration via the House of Talent job board today.

Get the TNW newsletter

Get the most important tech news in your inbox each week.