The EU Pay Transparency Directive is currently being transposed across Europe, with countries including Italy, Greece, Slovakia and Lithuania among those that have already adopted new legislation.
Here in France, we’re still waiting for the final rules. But the question at the heart of this article is one that companies across the EU will need to answer, and one that keeps coming up in my conversations with businesses:
How should workers be categorised when it comes to “work of equal value”?
I won’t revisit the theory behind this concept — fascinating and essential though it is. We covered that in detail in the last Compversation. Today, I want to focus on a much more practical question:
What is the right size for a category of workers?
The rules are: there are no rules
Worker categorisation is a sensitive issue because it forms the basis of pay transparency reporting. It’s the framework through which the key mechanisms of the EU Pay Transparency Directive will be put into practice: employee information rights, gender pay gap indicators, and any explanations or corrective actions required as a result.
The hitch is that the Directive doesn’t provide a rulebook. It simply defines a category of workers as “workers performing the same work or work of equal value grouped in a non-arbitrary manner based on [...] non-discriminatory and objective gender-neutral criteria”.
Basically, you’re on your own — as long as you stay within the definition and your approach is signed off by employee representatives.
That leaves employers with a question: how granular should you be when dividing workers into categories? Each company has to decide where to draw the line when it comes to group size: is it better to create broader categories or narrower ones?
To work out which approach makes the most sense for your organisation, you’ll need to weigh up the pros and cons of each.
The broad-strokes approach
This option means creating large categories that group roles together without distinguishing between job families or even geographic location.
In practice, this kind of approach will typically be based on grades — although whether those grades hold up under the Directive depends on the quality of the job evaluation behind them. If you want to dig deeper into job evaluation, you can revisit our previous Compversation on the subject.
I can see at least two advantages of doing it this way.
The first is obvious: you end up with fewer categories — which should, in theory, mean simpler reporting.
The second comes down to a statistical effect I’ve seen among clients who have taken this route: broader categories tend to smooth out gender pay gaps. That’s hardly surprising. The larger the sample, the more it evens out the extremes and reduces noise.
In practice, that can make it less likely that a category exceeds the 5% gender pay gap threshold that triggers an obligation to take action.
A word of caution, though. A perfectly legitimate attempt to smooth out statistical noise should not end up masking a problematic structural pay gap. That would run counter to the spirit of the Directive —and, soon, the law — which requires companies to address the root causes of pay inequality.
Now for the downside: While broader categories can work in your favour when it comes to gender pay gaps, they tend to do the opposite for individual pay differences.
There had to be a catch.
For example, broad categories might group together employees based in different locations in the same country. Yet we know that — for example, pay differences between Paris and other parts of France can reach close to 15%.
The same applies to the type of work being done: you might end up grouping very different roles together — a developer and a customer adviser, for example.
Either way, the more varied the roles and employees within a category, the wider the individual pay differences are likely to be. And that brings familiar consequences: more time spent explaining those gaps, potentially correcting them, and dealing with the confusion and frustration they can create.
The narrower option
This is the more granular approach: tighter categories based on job family, business area and/or location.
I recently had a conversation with a compensation leader at a banking group who had chosen this route: following negotiations with employee representatives, they had decided to split categories by business area. This decision was based on a simple and perfectly valid observation: a retail banking adviser does not do the same work as an investment banking adviser dealing with companies and high-net-worth individuals.
Narrower categories are often a closer reflection of how work is actually organised. And when it comes to the pros and cons, we see more or less the opposite of what happens with broader categories.
First, the more finely you divide your workforce, the more worker categories you create. And more categories to manage and monitor inevitably means more complexity — although that’s less of an issue than it once was. Some compensation management tools, including Figures, are specifically designed to handle high levels of granularity.
Second, smaller categories are much more sensitive to statistical noise — and that’s a disadvantage when it comes to gender pay gaps.
Unlike broader categories, which tend to smooth out differences, smaller groups mean you are more likely to end up with categories in which the gender pay gap exceeds the 5% threshold.
On the plus side, narrower categories tend to reduce individual pay differences because they group together employees whose roles, business areas or locations are more closely comparable. In statistical terms, that means less variation in pay within each category — and, as a result, fewer reasons for employees to exercise their right to information.
There is one other factor worth mentioning, although this one is more controversial — and still uncertain in many countries.
Depending on how the Directive is transposed into national law, there may be situations where an employee’s right to information is restricted for very small worker categories, particularly where sharing the data could make it possible to identify individual employees.
That possibility is already tempting some companies to opt for narrower categories in the hope of limiting requests for information. I’ll come back to this in detail in the next edition, but spoiler alert: I think that could be a very bad bet.
Do the groundwork now
So, should your categories be broad or narrow? As ever, there is no single right answer. It all depends on how you weigh up the different consequences.
The level of granularity you choose needs to reflect three things: the reality of your pay practices, your ambitions around transparency and fairness, and the spirit of the Directive. Lose sight of any one of them, and the whole approach can quickly become unbalanced.
What is certain is that finding the right approach for your organisation will require careful analysis upfront, based on solid, comprehensive data.
For anyone who has yet to get started, my advice is simple: now is the time.
Don’t wait until the rules apply before starting discussions with employee representatives and getting the work under way. Making these decisions under pressure rarely leads to the best outcome.
Once again, I suspect the companies that do the groundwork early will be the ones that come out ahead.
To continue the conversation
As usual, here are a few pieces worth reading to keep the conversation going. Feel free to send me any articles you’ve found interesting!
In April, EIGE (the European Institute for Gender Equality) and the European Commission published a guide to gender-neutral job evaluation and classification under the Directive. The toolkit takes you through, step by step, how to evaluate and classify a role against the four criteria — skills, effort, responsibility and working conditions — used to determine work of equal value. It also sets out different approaches depending on the size of your organisation.
It’s a useful way to understand what a valid gender-neutral job evaluation looks like in practice. As for how many categories to use, that remains — perhaps deliberately — vague. In its fictional case study for large organisations, the toolkit uses a structure of eight categories (grades).
Pay transparency is usually presented as an obvious step towards greater fairness. But what if the reality is more complicated? Zoë Cullen reviews the evidence on different forms of pay transparency and finds some interesting trade-offs. Greater transparency between colleagues can help narrow pay gaps, but it can also fuel unhelpful comparisons and give employers more bargaining power, putting downward pressure on salaries. Other forms of transparency can have more positive effects: showing employees what they could earn through promotion or at another company can increase motivation, encourage job moves and strengthen wage competition between employers. A useful reminder that when it comes to pay transparency, how you make pay visible matters just as much as whether you do it.
Summarize this article with AI
No time to read it all? Get a clear, structured, and actionable summary in one click.
