{"id":4569,"date":"2026-09-22T08:27:39","date_gmt":"2026-09-22T05:27:39","guid":{"rendered":"https:\/\/ludci.eu\/magazine\/?p=4569"},"modified":"2026-09-22T13:10:06","modified_gmt":"2026-09-22T10:10:06","slug":"the-end-of-salary-secrecy-part-iii-why-europes-new-pay-rules-are-about-much-more-than-equal-pay-2","status":"publish","type":"post","link":"https:\/\/ludci.eu\/magazine\/the-end-of-salary-secrecy-part-iii-why-europes-new-pay-rules-are-about-much-more-than-equal-pay-2\/","title":{"rendered":"The End of Salary Secrecy &#8211; Part III:  Why Europe&#8217;s New Pay Rules Are About Much More Than Equal Pay"},"content":{"rendered":"<h3 style=\"font-weight: 400; text-align: center;\"><span style=\"font-weight: 400;\">Dr Vassilia Orfanou, PhD, Post Doc, COIO, LUDCI.eu<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">Writes for the Headline Diplomat eMagazine, LUDCI.eu<\/span><\/h3>\n<h2><b>Transparency Is Not Economically Neutral<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The case for pay transparency is intuitive: better information should improve fairness and market efficiency. The difficult question is what happens after the information is disclosed. Workers renegotiate. Employers redesign ranges. Competitors benchmark each other. Managers become more cautious about exceptions. A reform intended to expose unjustified differences can therefore change the level, dispersion and structure of pay itself.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The academic evidence is deliberately mixed. In her <\/span><a href=\"https:\/\/pubs.aeaweb.org\/doi\/10.1257\/jep.38.1.153\"><span style=\"font-weight: 400;\">Journal of Economic Perspectives review<\/span><\/a><span style=\"font-weight: 400;\">, Zo\u00eb Cullen distinguishes different forms of transparency. Information about external opportunities can strengthen workers by improving search and comparison. Internal visibility can create negotiation spillovers that make employers less willing to grant individual increases. \u201cPay transparency\u201d is therefore not one intervention with one predictable effect.<\/span><\/p>\n<table>\n<tbody>\n<tr>\n<td><b><i>Transparency does not end bargaining. It changes who possesses the reference points, how credible those reference points are and what one pay decision implies for everyone else.<\/i><\/b><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2><b>Wage Compression and the Cost of Exceptions<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Once employees can compare pay, the cost of an individual exception rises. A premium offered to one recruit may trigger demands from incumbents. Managers may respond by narrowing differences, placing more employees near the middle of a band or becoming less willing to reward an exceptional negotiation. Standardisation can reduce arbitrary inequality, but it can also weaken flexibility where genuine scarcity or performance differences exist.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The possibility is supported by <\/span><a href=\"https:\/\/www.nber.org\/papers\/w28903\"><span style=\"font-weight: 400;\">Cullen and Pakzad-Hurson\u2019s model of the equilibrium effects of pay transparency<\/span><\/a><span style=\"font-weight: 400;\">. When one worker\u2019s raise becomes visible, the firm anticipates that others may renegotiate, reducing its willingness to pay the first worker more. Transparency can therefore shift bargaining power in ways that are less straightforward than the simple claim that more information always raises wages.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Evidence from public-sector disclosure also shows adjustment at the top. <\/span><a href=\"https:\/\/www.nber.org\/papers\/w20558\"><span style=\"font-weight: 400;\">Alexandre Mas\u2019s study of California municipal salaries<\/span><\/a><span style=\"font-weight: 400;\"> found that disclosure was associated with an average compensation decline of about 7% among top managers and a large increase in their quit rate. That setting differs from the EU framework, but it highlights a real trade-off: greater accountability may compress pay while encouraging highly mobile employees to leave.<\/span><\/p>\n<h2><b>External Transparency Can Push the Other Way<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Internal disclosure is only one channel. Public salary ranges also allow candidates to compare employers, and that can increase competition. If workers previously underestimated what other firms would pay, visible ranges can redirect applications and force low-paying employers to improve offers.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This is the mechanism emphasised by <\/span><a href=\"https:\/\/www.nber.org\/papers\/w34480\"><span style=\"font-weight: 400;\">Arnold, Quach and Taska<\/span><\/a><span style=\"font-weight: 400;\">, whose study of US posting laws found higher posted and realised salaries without a measurable decline in employment. Their findings sit alongside research showing wage compression in other settings. The apparent contradiction is the point: internal and external transparency can create opposing forces.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">For European employers, the practical implication is that salary strategy can no longer be designed solely inside the firm. Published ranges become market intelligence. Competitors can compare them, recruiters can challenge them and employees can use them as evidence when seeking adjustments. A remuneration framework that looked adequate in a closed system may become uncompetitive once the market can see it.<\/span><\/p>\n<h2><b>Internal Equity Becomes a Governance Test<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The greatest disruption may come from existing employees rather than new applicants. A company can publish a credible range for a vacancy and immediately expose that experienced incumbents are paid below it. Historic acquisitions, retention payments, local discretion and unequal bargaining may have created differences that were manageable only because they were difficult to observe.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Directive requires employees to receive information, on request, about their pay and average pay levels for comparable categories. The <\/span><a href=\"https:\/\/commission.europa.eu\/news-and-media\/news\/new-eu-rules-pay-transparency-explained-2026-06-05_en\"><span style=\"font-weight: 400;\">European Commission\u2019s practical summary<\/span><\/a><span style=\"font-weight: 400;\"> also highlights reporting for employers with at least 100 workers and joint assessments where an unexplained gender pay gap of at least 5% persists. These requirements make job evaluation and documentation central to governance.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Employers will need to distinguish between differences that are legitimate and differences that are merely historical. \u201cThat is what we negotiated at the time\u201d becomes a weak defence when the organisation cannot show why comparable work is valued differently. Pay governance will require clear role families, objective evaluation criteria, consistent treatment of variable compensation and an auditable record of exceptions.<\/span><\/p>\n<h2><b>Litigation, Reputation and Trust<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Transparency makes inconsistency easier to detect and challenge. The Directive strengthens access to compensation and can shift the burden of proof where employers fail to comply with transparency obligations. This increases legal exposure, but the more immediate risk may be organisational trust. Employees who discover unexplained differences may reinterpret past promotion decisions, performance reviews and retention promises through the lens of pay inequality.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The response cannot be communications alone. Publishing a philosophy without correcting unjustified gaps may deepen scepticism. Conversely, a company that identifies inconsistencies early, explains its methodology and provides a credible remediation plan can turn regulatory preparation into evidence of responsible leadership.<\/span><\/p>\n<h2><b>Strategic Recommendations<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Employers should treat transparency as a redesign of pay architecture, not an advertising requirement. Before publishing ranges, they should map roles, test whether job families are coherent, review incumbent positioning and define the evidence required for exceptions. Meaningful ranges must be narrow enough to inform while flexible enough to recognise legitimate differences.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">HR and reward leaders should replace informal discretion with governed discretion. Managers still need room to compete for scarce skills, but every departure from the framework should have a documented rationale, an approval path and a review date. Training should focus not only on what managers may disclose, but on how they explain placement, progression and work of equal value.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Employees should use transparency as evidence, not entitlement. A published range does not automatically place every incumbent at its maximum. Strong negotiations connect contribution to the criteria that move pay: expanded responsibility, scarce capability, measurable performance and market movement. Employees should ask how their position was determined and what specific evidence is required to progress.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Boards and investors should treat pay governance as an indicator of organisational maturity. Persistent unexplained gaps can signal weak controls, fragmented acquisitions, poor workforce planning or cultural risk. Boards should ask whether ranges are credible, whether exceptions are monitored and whether remediation costs have been assessed.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Policymakers should monitor the quality of implementation rather than the volume of disclosure. Extremely broad ranges, inconsistent definitions and excessive administrative burden can weaken the reform. Guidance should encourage meaningful comparability while preserving proportionate flexibility for smaller employers and specialised labour markets.<\/span><\/p>\n<h2><b>Overall Conclusion: The Economics of Openness<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Europe\u2019s Pay Transparency Directive is commonly described as an equal-pay measure. It is certainly that, but its significance is broader. It changes how information moves through one of the continent\u2019s largest markets. Salary becomes visible earlier, comparable more widely and defensible only through clearer evidence.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The first article in this series examined the labour market as Europe\u2019s last opaque market. The second showed how transparency changes the psychology and structure of negotiation. This final article has shown why openness can also create wage compression, internal pressure, legal exposure and stronger competition for talent.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The outcome will not be identical across organisations. Mature employers may use transparency to strengthen trust, recruitment and governance. Others will discover that their compensation structures depend on inconsistency remaining invisible. Employees will gain better reference points, but they will still need to demonstrate value. Regulators will obtain more information, but they will need to distinguish meaningful disclosure from formal compliance.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The Directive does not abolish negotiation, performance differences or market pricing. It changes the burden of explanation. Employers will increasingly need to show not only what they pay, but why. Employees will negotiate with something many have historically lacked: a credible view of the role\u2019s value before the conversation begins.<\/span><\/p>\n<p style=\"font-weight: 400;\"><b>The end of salary secrecy will not make the labour market perfectly fair. It will make unfairness harder to hide\u2014and it will make the quality of pay governance far easier to judge.<\/b><\/p>\n<h2><b>References<\/b><\/h2>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Arnold, D., Quach, S. and Taska, B. (2025). <\/span><a href=\"https:\/\/www.nber.org\/papers\/w34480\"><i><span style=\"font-weight: 400;\">The Impact of Pay Transparency in Job Postings on the Labor Market<\/span><\/i><\/a><span style=\"font-weight: 400;\">. NBER Working Paper No. 34480.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Cullen, Z.B. (2024). <\/span><a href=\"https:\/\/pubs.aeaweb.org\/doi\/10.1257\/jep.38.1.153\"><i><span style=\"font-weight: 400;\">Is Pay Transparency Good?<\/span><\/i><\/a><span style=\"font-weight: 400;\">. Journal of Economic Perspectives, 38(1), pp. 153\u2013180.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Cullen, Z.B. and Pakzad-Hurson, B. (2021). <\/span><a href=\"https:\/\/www.nber.org\/papers\/w28903\"><i><span style=\"font-weight: 400;\">Equilibrium Effects of Pay Transparency<\/span><\/i><\/a><span style=\"font-weight: 400;\">. NBER Working Paper No. 28903.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">European Commission (2026). <\/span><a href=\"https:\/\/commission.europa.eu\/news-and-media\/news\/new-eu-rules-pay-transparency-explained-2026-06-05_en\"><i><span style=\"font-weight: 400;\">New EU rules on pay transparency explained<\/span><\/i><\/a><span style=\"font-weight: 400;\">. 5 June. (Accessed 21 July 2026).<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">European Union (2023). <\/span><a href=\"https:\/\/eur-lex.europa.eu\/eli\/dir\/2023\/970\/oj\/eng\"><i><span style=\"font-weight: 400;\">Directive (EU) 2023\/970 on pay transparency and enforcement mechanisms<\/span><\/i><\/a><span style=\"font-weight: 400;\">. Official Journal of the European Union, L 132, pp. 21\u201344.<\/span><\/p>\n<p style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Mas, A. (2014). <\/span><a href=\"https:\/\/www.nber.org\/papers\/w20558\"><i><span style=\"font-weight: 400;\">Does Transparency Lead to Pay Compression?<\/span><\/i><\/a><span style=\"font-weight: 400;\">. NBER Working Paper No. 20558.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Dr Vassilia Orfanou, PhD, Post Doc, COIO, LUDCI.eu Writes for the Headline Diplomat eMagazine, LUDCI.eu Transparency Is Not Economically Neutral The case for pay transparency is intuitive: better information should improve fairness and market efficiency. The difficult question is what happens after the information is disclosed. Workers renegotiate. Employers redesign ranges. 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