Compversation #30 - The Pandora’s Box of Employee Shareholding

One thing you can say for certain about the European Pay Transparency Directive: it’s clear. 

It bans asking candidates for their salary history, requires salary ranges in job postings, establishes employees’ right to information, and shifts the burden of proof …

Its main provisions really don’t leave much room for national lawmakers to interpret. And the draft laws we’ve seen so far contain no real surprises.

Except perhaps that some European countries seem ready to go even further than the directive itself.

For all these reasons, I encourage the companies I work with to start preparing for transparency now, without waiting for the final version of the law.

But I have to admit that grey areas remain, and some are more unpredictable than others. One of them is the definition of “remuneration.”

What exactly falls under this umbrella? The directive states:

“Pay should include the ordinary basic or minimum wage or salary and any other consideration, whether in cash or in kind, which the worker receives directly or indirectly, in respect of his or her employment from his or her employer.”

This clearly includes base salary, variable pay, and bonuses, but not explicitly employee shareholding (I’m using “employee shareholding” here to refer to all equity compensation mechanisms such as RSUs, stock options, and similar plans.) 

Still, it’s reasonable to believe these elements could fall within this definition. Personally, I always assumed equity would be excluded from the new transparency framework.

First, because in many European legal frameworks, equity has traditionally been distinguished from regular salary. For example, stock options and other share-based incentives are often treated as long-term incentives or indirect compensation rather than pay in the strict sense.

Second, for practical reasons: very few companies report anything on employee equity. Forcing them to do so would open a real Pandora’s box. And I long believed that individual governments wouldn’t want to go down that road.

But in reality, nothing is settled, and there are weak signals suggesting the issue may not be so clear-cut. Across Europe, some national frameworks treat equity and long-term incentive plans as indirect compensation rather than salary, creating ambiguity about whether they fall within the Directive’s definition of “pay.” It’s one of the topics that employment lawyer Leslie Nicolaï and I explored during our session at the 2025 Compensation Summit, where we shared doubts about the final scope of the legislation.

Given this uncertainty, the way companies grant and manage stock options and employee equity is a strategic issue, both for compliance and for internal equity.

Discretion in action … and in practice … 

In compensation plans, discretionary decision-making has a tendency to hide away in certain corners. Variable pay has long been one of those corners. I mentioned this in a previous newsletter. Often used to reward those seen as “stars” without having to justify it broadly, variable pay must now be explained and rationalised in the era of transparency.

Companies have already started adapting by revisiting the objectives used to allocate bonuses and incentives. Over time, the discretionary portion has shrunk.

But there’s still a real “Wild West” of discretion that most companies haven’t tackled at all: employee equity. From large listed companies granting RSUs to startups issuing stock options, leadership teams routinely use equity to differentiate and retain the employees they consider most valuable.

Without formal structure, budgets are handed to department heads or business unit leaders. This leads to vague conversations about “potential,” questions about who counts as a “star” and who doesn’t, which are almost never based on objective facts.

One might think this wouldn’t be an issue if equity compensation ends up excluded from individual country laws …

Except transparency isn’t just about compliance.

A potential source of disputes 

The European directive wasn’t written in a vacuum.

It reflects a broader societal shift: companies can no longer afford opacity in compensation, unjustified gaps, or persistent gender inequality.

Younger generations especially expect organisations to lead by example. For them, salary transparency isn’t an administrative detail; it’s a key factor when choosing where to work and commit long term. Law or no law, they readily turn to social media when they feel unfairly treated.

So, even if equity compensation isn’t included in the law, it could still be a bone of contention, a source of internal dissatisfaction or public backlash. Especially given that some of the most significant pay gaps inside companies appear precisely in equity:

Between an executive and a young manager, salary differences may range from 1x to 3x, sometimes 4x.

But equity differences can quickly jump to 30x, 50x, or even 100x…

The CHRO of a listed company whose share price has surged in recent months told me that equity had become a point of contention with employee representatives. They realised that the amounts negotiated each year during mandatory wage talks (a few tenths of a percent of total payroll) were nothing compared to the gains generated by share price increases for executives holding large equity packages.

It’s easy to see why this is such a sensitive topic when a large share of executive compensation comes from equity, something employees lower in the hierarchy cannot access.

Even worse: equity can also amplify gender inequality:

• Equity awards primarily go to executives
• Fewer women reach those levels due to the glass ceiling
• Mathematically, this creates enormous gender pay gaps, which companies will struggle to justify

So it’s understandable why, in theory, equity could end up included in the new law, even if, practically speaking, the implementation seems complex.

Introducing structure where none exists 

Either way, companies have every interest in rationalising how they grant RSUs and stock options.

If equity compensation ends up included in the transparency law, they’ll get way ahead of a massive reporting challenge that could require disclosing sensitive information.

If it’s not included, they’ll still be better prepared to avoid backlash from real or perceived inequities, and better aligned with what employees expect today.

More and more companies are using objective, concrete methods to allocate equity, based on criteria such as performance and level of responsibility.

In the last three companies where I’ve worked (including Figures), we built a very factual framework for equity allocation:

• A simple “yes or no” matrix. For example: juniors aren’t eligible unless they deliver exceptional performance. Seniors become eligible when they exceed expectations. Directors are systematically eligible unless they underperform.
• The equity amount is a salary multiple. A junior with exceptional performance might receive equity worth 20% of their package, while a senior executive might receive two to three times their annual package.

With a level × performance matrix like this, you land on an objective, non-discretionary methodology (assuming, of course, that performance evaluations are genuinely objective).

In the era of transparency, the ability to justify and explain your decisions will be essential, whether in court or in the court of public opinion.

If you’d like to talk about equity distribution matrices, feel free to get in touch!

To continue the conversation 

A selection of content to fuel your reflection. Feel free to send me any of your great reads. 

New Research Debunks a Common Criticism of Pay Transparency — Mary Ellen Carter, Lisa 

LaViers, Jason Sandvik and Da Xu – Harvard Business Review 

Contrary to the idea that pay transparency hurts employee morale, new research suggests it may actually increase satisfaction with compensation. Employees spend less time guessing what others earn and are less likely to overestimate average salaries.

Rethinking Pay for Performance in the Era of Pay Transparency — A selection of thought leaders from Aon 

This article examines how performance-based pay (which often includes variable pay, incentives, equity) must be clearer and more justifiable in the transparency era.