The term “pay transparency” can strike fear into employers’ hearts – what does it mean? Do I have to tell everyone what everyone else is paid? What do I do if employees aren’t happy?
Front-footing the issue by taking a considered and consistent approach to how you pay your people is not only sensible in light of the calls for pay transparency, but also best practice and good for your organisation’s culture, financial health and staff engagement. The best way to provide a robust basis for pay decisions is to implement and maintain a strong foundation for those pay decisions.
The EU recently put out a directive, due for compliance by mid 2026, related to pay transparency with the aim of eliminating pay discrimination and supporting equitable remuneration practices. The directive requires employers to be both open and fair in their decisions about pay.
As well as introducing gender pay gap reporting across Europe for the first time, it places obligations on employers to be transparent with workers and candidates about pay and pay progression. It also introduces a ban on pay secrecy clauses, and prevents employers from asking candidates about their remuneration history.
While New Zealand is not specifically covered by the EU directive, we generally align with the overall approach intended by such directives. New Zealand’s recent so called “pay transparency” legislation (the Employment Relations (Employee Remuneration Disclosure) Amendment Act 2025) focuses on the pay secrecy aspect, banning pay secrecy clauses in employment agreements. The Equal Pay Act 1972 places on employers a duty to not pay people differently on the basis of sex. Amendments to that Act have aimed at helping the parties to come to an agreement about what equitable remuneration would be, and makes court action a last resort rather than a first step.
Whether there is legislation requiring pay transparency and pay equity or not, it makes good business sense to be both fair and open with employees about what and how they are paid. Communicating pay information contributes significantly to employees’ trust in their employer, increasing engagement and reducing turnover. Having a strong foundation for your pay decisions makes transparency about those decisions easier.
A requirement for pay transparency in general, and the EU’s directive specifically, raises the issue of job sizing – the foundation for pay outcomes. The EU directive indicates that job sizing systems need to ensure that any pay differences are based on legitimate job-related factors rather than bias or discrimination. While the EU doesn’t prescribe a specific job sizing method, it does give a strong steer towards a more analytical approach rather than job classification or job match approaches.
The EU directive brings job evaluation to the fore as a strong foundation for pay decisions, because job evaluation provides a systematic, objective framework to assess the relative worth of different jobs within an organisation. Just implementing a job evaluation system is not enough, however. Checking the integrity of the outcomes is also important. Job evaluation is not a “set and forget” methodology. Organisations change, the context changes. Your foundation needs to be checked regularly.
Organisations sometimes express concerns around using job evaluation, worried that it is time-consuming and that there are ways of ‘gaming’ the system. Because job evaluation relies on measuring and quantifying the key aspects of jobs, as with all data, the inputs need to be accurate for the outputs to be valid. This can take time to get right. And, as with all people-related processes, there is always the risk of bias affecting the outcomes.
It is important to remember that, although job evaluation is a systematic and consistent process limiting subjectivity, unconscious bias by evaluators can still influence job evaluation decisions Therefore, a job evaluation system works best when there are a range of people involved and the outcomes are reviewed regularly. Reviews are needed for consistency both within the organisation and outside the organisation. Given a key purpose of using job evaluation is to ensure pay outcomes are appropriate and fair (i.e. both competitive and equitable), ensuring that both internal and external relativities of job evaluation outcomes are appropriate is critical.
Undertaking a job evaluation audit is a good way of checking the health of the foundation for your pay structure Checking the application of the job evaluation methodology across the organisation and across time is important. Inaccurate work value assessments can lead to bias in pay outcomes because they lose connection and alignment with internal and external relativities.
A review of job evaluation outcomes within an organisation also needs to take into account consistency within the methodology itself. An effective job evaluation system needs to retain currency with changes in the workplace and in the social environment. Strategic Pay’s job evaluation methodology, SP10®, used across sectors and throughout New Zealand, is regularly reviewed with this in mind. Our recent review of the SP10® job evaluation manual focused on updating the methodology to reflect changes in jobs, organisational structures, dollar values with inflation, and societal values.
One key focus for job evaluation is to reduce bias when assessing the level of the “soft” skills. While the level of some skills can be determined by the length of time it takes to acquire them, others, such as interpersonal skills and cultural competence, need to be evaluated more holistically. Our recent review of the SP10® job evaluation manual focused on making it clear where these skills can and should be reflected in an evaluation of a role.
As with any good system, to be effective, a job evaluation system needs to be kept up to date, well-tuned and checked for any potential errors in application and/or outcomes. Even minor misalignments can develop over time into a major issue for the effective functioning of the system. This is especially so for pay systems, where individuals’ pay outcomes have been shown to be affected by bias.
If an organisation hasn’t checked their job evaluation outcomes for internal and external consistency as well as consistency with the methodology, inaccuracies can result in inequitable pay outcomes. This can have a significant impact on the bottom line financially and in terms of employee engagement and therefore employee turnover as well.
Now New Zealand’s “pay transparency bill” has been passed as legislation employees will start talking about their pay levels and questioning their employers on differences. Knowing that the foundation of your pay structure is sound is a strong starting point for dealing with any questions confidently and effectively.
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