Pay transparency is a hot topic in HR right now — and one we talk about a lot here at Figures.
But while most people think of pay transparency as comparing salaries to ensure fairness, that’s only part of the picture. After all, an employee’s salary is just one piece of their total compensation package — bonuses, benefits, stock options and other perks all count too.
In this article, we’ll explore the importance of transparency around total compensation, especially in the context of the EU Pay Transparency Directive.
What is the EU Pay Transparency Directive?
First things first: a quick refresher. The EU Pay Transparency Directive is a major piece of legislation passed in 2023, designed to make pay across Europe fairer and more transparent. It will be rolled out across all 27 EU member states by June 2026 — though some countries have already begun implementation.
Once in place, the directive will introduce several new obligations for employers, including:
- Salary transparency in job ads: Employers must share salary details with candidates before the interview stage — typically by including them in job descriptions.
- Gender pay gap reporting: Companies with over 150 employees will need to report on their gender pay gap every three years, and those with 250+ employees will have to report every year.
- Pay audits and action plans: If a gender pay gap of 5% or more is found in any category, employers must carry out a joint pay assessment and create an action plan to fix the problem.
- Right to pay information: Employees will be able to request certain information about their pay and how it compares to others — and employers will have to provide it.
What the directive says about total compensation
One key requirement of the EU Pay Transparency Directive is that employers must report separately on base salary and total compensation. But what exactly does this mean?
The language of the directive leaves this fairly open to interpretation, saying that employers need to take into account:
‘Any benefits in addition to the ordinary basic or minimum wage or salary, which the worker receives directly or indirectly, whether in cash or in kind.’
Depending on the pay and benefit structures at your organisation, this might include:
- Bonuses
- Stock options
- Commission
- Profit-sharing
- Pensions
- Allowances
- Benefits and perks
Of course, this list isn’t exhaustive. Once the directive is in force, employers will need to be able to measure, track and explain anything that forms part of an employee’s total remuneration package.
The importance of total pay transparency
At its core, pay transparency is about fairness. Its goal is to expose and correct unequal pay practices by enforcing the principle of equal pay for work of equal value.
But salary alone doesn’t tell the whole story. For example, imagine two employees in the same role, on the same salary. If one of them receives a huge bonus at the end of the year while the other gets nothing, are they really being treated equally? Probably not.
And bonuses are just the start — pay inequities can also hide in other areas. For example, imagine that:
- One employee has a more generous vacation package than his colleagues.
- Some team members have access to larger training budgets than others.
- One person is permitted to work remotely two days per week, while others aren’t.
- One employee gets a bigger stock allocation than his or her teammates.
Without full visibility into these variations, unfairness often flies under the radar. But once the EU directive is in effect, employers will be required to justify all differences in compensation — not just base pay — for employees in the same or similar roles.
What causes unequal pay?
Discrepancies in pay elements like bonuses, benefits and equity can arise even when employers think they’re doing everything right. For example, here are a few things that could be causing problems in your organisation if you’re not paying attention:
- Gender representation in certain roles: Some roles come with more variable compensation opportunities than others. If those roles are disproportionately held by one gender, a gender pay gap can emerge — even if base salaries are equal.
- Too much manager discretion: When bonuses, stock or perks are awarded at the discretion of individual managers, bias and favouritism can creep in. Without clear guidelines, even well-meaning decisions can lead to unequal outcomes.
- Negotiation gaps: Allowing candidates to negotiate elements like bonuses or stock during the hiring process can also create pay gaps — particularly since research shows that some groups may be less likely to negotiate than others (and less likely to succeed when they do).
- Subjective performance evaluations impacting bonuses and rewards: While tying bonuses to performance is a legitimate strategy, this only works if you have fair and consistent ways of assessing performance. In many organisations, biased or arbitrary performance ratings translate directly to unfair pay.
- Lack of documented compensation and benefits policies: Many employees have special deals with their manager — extra training budgets, flexibility perks, better equipment. If these aren’t tracked or formalised, they can lead to significant differences in total compensation.
How to make total compensation fair and transparent
What does total pay transparency actually look like in practice? And how can you make sure bonuses, benefits and perks are awarded fairly? Here are some practical steps to help you build a more transparent and equitable approach to total compensation.
Conduct a thorough analysis of all compensation elements
The first — and arguably most important — step is to map out all the compensation elements within your organisation. And it’s rarely as simple as checking a policy document.
That’s because many perks and benefits are the result of informal, one-off agreements between managers and their reports (things like extra training budgets, flexible work arrangements or travel allowances, for example). These may not be tracked centrally, but they still have value and must be accounted for.
Even formal policies are often scattered across different tools and teams, making it hard to understand the full picture. Despite the complexity, this analysis is essential to building a fair and transparent compensation structure.
Define a compensation philosophy (if you haven't already)
A clear compensation philosophy is the foundation of fair and consistent pay practices. It sets out how you pay your employees — and, crucially, why.
Your compensation philosophy should cover every element of your total compensation strategy, including base pay, bonuses, benefits, equity, commissions and allowances. It gives structure to pay decisions and ensures everyone — from HR to managers to employees — understands how compensation works.
A well-defined philosophy also helps align your pay practices with your wider business goals, ensuring your approach supports both fairness and performance.
Formalise criteria for variable pay, benefits and perks
Many companies apply strict rules to base salaries — but leave bonuses, benefits and perks to manager discretion. Over time, this can lead to inconsistencies and unfair treatment. For example, managers may have negotiated informal arrangements with certain employees in order to reward them when a bonus or pay rise wasn’t available.
Another example is when a business has been through a merger or acquisition, and legacy policies continue to apply to certain groups of employees without HR’s knowledge or validation.
Employers can improve pay equality by formalising the criteria for awarding different pay elements. For example, setting up a fair, consistent system for performance reviews — instead of relying on subjective opinions from managers — can make the distribution of bonuses much more fair.
Communicate policies clearly to managers and employees
It’s not just about having the right policies in place, but ensuring that everyone understands them. For the most part, this means communicating to:
- Employees
- Managers
Both of these groups should have a clear understanding of the different pay elements that exist within your organisation, as well as how each one is calculated and awarded. This helps managers to understand the importance of sticking to official policies, reducing the impact of informal agreements and arrangements.
At the same time, it can build trust among employees, helping to reassure them that their pay is backed up by a logical, consistent structure.
Preparing for pay transparency: getting your business ready for 2026 and beyond
There’s no getting around it: preparing for pay transparency will be a lot of work for most organisations. And expanding your view of compensation to include bonuses, benefits, stock options and perks adds even more complexity.
Here’s the thing, though: if your company is located within the EU, you simply don’t have a choice. By 2026, employers will be expected to justify all aspects of employee pay — not just salaries. And that’s a good thing.
Forward-thinking companies will use this as a strategic opportunity, going beyond compliance to stand out as top employers. By making every part of compensation transparent and consistent, you can build trust, attract top talent and show that fairness isn’t just a legal obligation — it’s part of who you are.
