Equal Pay: From Obligation to Structure

In autumn 2025, a commission set up by the Federal Ministry for Education, Family, Senior Citizens, Women and Youth presented its final report. This contains various suggestions for implementing the EU Pay Transparency Directive in Germany. The aim of this commission, which included eleven experts from science, employers’ associations and trade unions, was to develop recommendations for a national design of the European requirements that was as bureaucratic and practical as possible.

The report specifies key terms such as “reportable pay”, “equivalent work” and the design of remedial procedures. In doing so, it provides a clearer framework for the future legal implementation of the directive in Germany.

The clarification also makes it clear: The EU Pay Transparency Directive not only intervenes in reporting processes, but also in the architecture of remuneration systems themselves. While many organizations have long treated the issue primarily as an equality or compliance project, its implementation now shows that pay transparency is primarily a structural issue.

Analysis and structure: Where is the market currently?

A clear picture can currently be derived from project practice. Numerous companies have carried out initial gender pay gap analyzes and know their key figures. But very few have fully harmonized job architectures or consistently documented evaluation logics. Although transparency is measured, it is not always managed systematically.

The five percent threshold in the draft law in particular seems like a reality check. If a pay difference is above this value and cannot be objectively justified, pressure to act arises. The justification must be based on factual criteria such as qualifications, performance or responsibility and, above all, must be reliably documented. Such criteria certainly exist in many companies, but not in a form that is audit-proof and consistently applied.

The vast majority of companies are currently between the analysis and structure phases. The numbers are known, but the system behind them is often not yet sufficiently consolidated.

Underestimated basis: employee categories

A central, often underestimated topic is the definition of appropriate employee categories. The Pay Transparency Directive requires comparisons within groups that perform “the same work or work of equal value.” But: What does this actually mean in everyday company life?

Many organizations work with historically grown employee groups, functional clusters or collective bargaining structures that are not always consistent with modern job architecture. Different contract models, hybrid roles and international job frameworks also make clear assignment into groups more difficult.

Without clearly defined employee categories, any transparency analysis becomes a matter of interpretation. Every company must therefore decide:

• What system is the comparability based on?
• Do we want to use global job families or national or collective bargaining classifications?

The lack of consistency in this fundamental question is currently one of the biggest challenges that companies are currently facing.

Remuneration components: What belongs in the comparison?

Another critical point concerns the definition of reportable remuneration. What is relevant here is the actual remuneration actually paid – both as an annual and as an hourly value. But in practice the question arises: Which compensation elements are really included?

The basic salary is generally undisputed. But how should variable compensation be dealt with? Should this be calculated as a one-off payment? Also, what about fringe benefits? With benefits in kind? Or with voluntary additional benefits?

The EU Pay Transparency Directive does not provide detailed operational instructions on all issues. Companies must therefore develop their own governance rules.

Many companies are faced with complex demarcation issues: if certain fringe benefits are included, this can increase or distort statistical differences. If they are excluded, this must be justified consistently and comprehensibly. In addition, HR systems are often not designed to evaluate individual compensation components in a granular manner. An important point. The directive forces companies to classify their compensation components structurally. This is a task that is often much larger than companies expect.

Biggest bottleneck: Comparability and outliers

It becomes particularly challenging when dealing with outliers – both upward and downward.

Upward outliers arise, for example, when former managers move into specialist roles but retain their historically developed salary package. Such constellations are reality in many organizations. The central question is: Is this an objective justification? And if so, is it sustainable in the long term? Companies face several dilemmas here. Do other employees have to be adjusted to the higher level? Is it legally permissible or practicable to reduce salary packages in the future as part of change terminations? And how can individual cases be prevented from creating structural distortions?

Dealing with downward outliers is even more sensitive. Questions that arise include: How large can a negative deviation from the group mean be before action is required? Is it enough to document differences – or do companies have to proactively make adjustments? And at what threshold does a legal risk arise?

The guideline does not provide any detailed operational instructions for this. Companies must therefore develop their own governance rules. This is exactly where another difference in the level of maturity becomes apparent: organizations with clearly defined salary bands and structured evaluation procedures can better classify deviations. Companies with highly individualized compensation decisions come under pressure much more quickly.

New dynamics in co-determination

If there is an unexplainable difference in pay, a remedial procedure involving employee representatives takes effect. Responsibilities, documentation requirements and possible adaptation measures must therefore be clearly regulated.

Many companies do not yet have defined process chains for this case. It is often unclear how HR, legal and works councils should work together, who is responsible for the evaluation logic and how decisions are documented. Pay transparency thus becomes a governance issue – and a stress test for internal coordination processes.

The extension of EU pay transparency requirements to the application process increases additional pressure. Salary ranges must be disclosed at an early stage; previous salaries may no longer be inquired about.

Transparency begins in recruiting

The extension of European transparency requirements to the application process increases additional pressure. Salary ranges must be disclosed at an early stage; previous salaries may no longer be inquired about. This means: Companies must be able to consistently represent their compensation logic externally.

This makes it clear how closely transparency is linked to system quality. If you don’t have clear salary ranges defined, you will have difficulty communicating consistent ranges. Anyone who works heavily with individual negotiations will have to reorient themselves.

Conclusion: Transparency as a system test

The EU Pay Transparency Directive is less a reporting instrument than a structural test for existing remuneration architectures. Companies are currently facing three key challenges:

• clear definition of employee categories,
• consistent classification of compensation elements and
• systematic handling of outliers and deviations.

The majority of the market is still transitioning from analysis to structure. Anyone who simply collects key figures without harmonizing the underlying systems will come under pressure in the medium term.

Pay transparency is not decided in the report, but in the quality of the system architecture. It is less a question of salary disclosure and more a question of structural controllability.