As disclosure requirements spread globally, organisations are discovering their compensation structures cannot withstand scrutiny. The EU Pay Transparency Directive deadline of June 2026 is forcing companies to run pay equity audits. The findings are uncomfortable.
Three-quarters of US employers are unprepared for current pay transparency laws, according to Aon’s 2024 North America Pay Transparency Readiness Study. Only 19% of companies have a pay transparency strategy in place, Mercer’s 2024 Global Survey found.
The reckoning is coming regardless. Of those companies that have conducted independent pay equity analyses, 84% discovered pay gaps and disparities. Only 34% of those organisations have allocated additional funding to correct them.
The Compression Crisis
Pay compression has emerged as a particularly insidious problem. During the talent wars of 2022 and 2023, organisations paid premium rates to attract new hires while existing employees received modest annual increases.
The result: new starters earning as much as, or more than, colleagues with years of experience in identical roles. Around 30% of employers now plan to increase salaries in 2025 specifically to address compression and restore their salary ranges.
This is not merely an accounting inconvenience. When employees discover a recent hire earns more for the same work, trust erodes immediately. Research shows pay transparency can reduce productivity among employees who discover they are paid below their peers, particularly affecting their willingness to contribute discretionary effort.
What the Audits Are Revealing
Organisations running their first comprehensive pay audits are finding problems they did not know existed. Gender gaps persist across industries, with women earning approximately 83 cents for every dollar men earn when working full-time, according to the US Bureau of Labor Statistics. This represents a slight widening from the previous year.
The adjusted pay gap proves even more concerning for HR leaders. This is the difference that remains after controlling for role, experience, education and performance. It is the gap that cannot be explained by legitimate business factors.
Companies are discovering pay inequities stemming from inconsistent hiring practices, varying negotiation outcomes, legacy pay structures that were never updated, and the accumulated effect of managers making ad-hoc decisions without centralised oversight.
A Lattice survey found that since 2022, the proportion of HR professionals rating their company’s compensation transparency as “excellent” has dropped from 22% to just 8%. Those rating it “poor” have more than tripled in that same period.
The Regulatory Pressure
EU member states must transpose the Pay Transparency Directive into national law by 7 June 2026. The European Commission confirmed in December 2025 that this deadline remains firm, despite the Netherlands announcing delays to January 2027.
The directive requires employers to address pay gaps exceeding 5% when they cannot be objectively justified. Companies with 150 or more employees must report gender pay data. Those with unresolved gaps by January 2026 will see those disparities made public in their first mandatory report.
Implementation is progressing unevenly. Germany has yet to publish draft legislation. Belgium is navigating complex collective bargaining agreements. Denmark has not included implementation in its 2025 to 2026 legislative programme.
For multinational organisations, this creates a compliance challenge across multiple jurisdictions with varying requirements and timelines.
The Business Case for Action
The cost of inaction increasingly outweighs the cost of remediation. Employees who believe they are fairly compensated report 82% higher engagement and fulfilment, according to Indeed research. Payscale found pay transparency can reduce the likelihood of employees searching for new jobs by 30%.
Conversely, discovering pay disparities can prompt immediate turnover. Even when inequities are corrected, the damage to trust may already be done. Employees who learn a colleague has been earning significantly more often leave regardless of subsequent adjustments.
Companies committed to compensation transparency show dramatically higher employee engagement: 72% compared to 39% for those without such commitments, according to Lattice’s 2024 State of People Strategy survey.
What HR Leaders Should Do Now
Audit before you are required to. Running pay equity analyses now allows time to remediate issues before mandatory reporting exposes them publicly. The alternative is discovering problems when regulators or employees force disclosure, leaving no room for quiet correction.
Budget for remediation. Around 45% of businesses made equity-related pay increases in 2024, projected to rise to 50% in 2025. Just 10% of compensation leaders maintain separate budgets for pay equity adjustments. Most fund corrections through merit or general compensation pools.
Address compression systematically. Approximately 15% of employers implemented salary increases in 2024 specifically due to pay transparency requirements. This figure is expected to rise to 18% in 2025. Treating compression as a one-off fix rather than an ongoing discipline ensures the problem returns.
Train managers on pay conversations. Nearly half (45%) of HR professionals surveyed by Lattice said their companies only share pay band information with finance and HR. Less than a third (32%) said current employees know their own pay band. Managers need clear guidance on philosophy, bands and how placement is determined.
Establish ongoing monitoring. Pay equity is not a one-time initiative. Regular audits, standardised decision-making frameworks and systematic reviews prevent new gaps from emerging as the workforce evolves.
The organisations that will navigate this transition successfully are those treating transparency not as a compliance burden but as an opportunity to build trust. Those that delay will face the uncomfortable prospect of having their internal inequities exposed on a regulator’s timeline rather than their own.
