Pay Transparency: Behind Pay Disparities Lies a Governance Crisis

Pay transparency does more than just challenge compensation systems. It undermines the implicit mechanisms through which organizations distribute power, manage exceptions, and maintain their internal coherence.

Since calls for greater pay transparency have intensified, many organizations have focused their efforts on improving data reliability, reporting metrics, and measuring pay gaps. This is a logical response, but it is insufficient.

This is because the first challenges organizations encounter are generally not technical nor statistical. They are organizational.

Pay transparency is, above all, a powerful revealer. It lays bare trade-offs that had previously operated implicitly: localized exceptions, legacy pay adjustments, managerial compromises, or discrepancies that were tolerated precisely because they remained invisible. Many companies are thus discovering an uncomfortable reality. Their pay systems are not truly based on coherent, formalized governance, but rather on a fragile balance between local autonomy, informal memory, and partially established rules.

However, European Directive EU 2023/970 changes the equation in one crucial respect. It focuses on equal pay for women and men, mandates transparency in pay criteria, and also requires organizations to justify pay gaps not based on objective, gender-neutral criteria. Pay decisions that were previously managed internally are now subject to comparison, challenge, and justification to external stakeholders.

The real challenge, therefore, is no longer simply a matter of making compensation transparent. It is whether the organization is capable of being accountable for, justifying, and defending the compensation decisions it makes. Until now, however, few organizations had needed to formalize this governance.

WHY WAGE OPACITY ALLOWED ORGANIZATIONS TO FUNCTION

Reconciling Contradictory Logics

Companies operate in highly heterogeneous environments (labor markets with varying degrees of labor-market tightness, business units with different compensation cultures, and business lines based on value propositions that are sometimes incompatible).

Given this heterogeneity, pay opacity serves a specific organizational function. It allows for local adjustments without disrupting overall consistency and absorbs the contradictions between market adaptation and internal equity. Opacity also maintains fragile political balances, without forcing trade-offs that no one is willing to accept.

Pay decisions are made under highly specific circumstances, and their rationale can only be understood at the local level by those directly involved. Certain discrepancies coexist simply because they are never never compared with one another. The organization often functions not in spite of its inconsistencies, but because of their partial invisibility.

As Walsh and Ungson have shown, organizations store their decision-making logic more in individuals, routines, and practices than in formal systems. What holds the system together is not the consistency of written rules, but the shared practices embodied in the people who keep the organization running on a day-to-day basis. [1]

A system that operates more through informal understandings than on rules

Decisions that deviate from the formal framework often reveal more about how the system actually works than its official rules do. Exceptions are not anomalies but are one of the organization’s main mechanisms for adaptation.

Individual exceptions made during hard-to-fill roles or adjustments granted to maintain team stability often play a more decisive role than strict application of the pay scale (for organizations that have one). A formal structure establishes a general framework and reference points; these adjustments allow the system to function in situations that the rules alone cannot accommodate.

This approach involves a distribution of responsibilities among HR, managers, finance, and business units. Even within the HR function itself, roles and responsibilities often remain implicit. For example, Comp&Ben teams define benchmarks and pay ranges, HRBPs support local decisions and negotiate exceptions, while managers effectively make decisions that no one has formally delegated to them. Everyone operates within their own area of expertise, but no one explicitly holds overall responsibility.

This lack of clarity regarding decision-making authority is not a flaw in the organization but rather one of the conditions necessary for its operation. It allows decisions to be distributed among several actors without having to formalize every exception or centralize all decision-making. As long as these decisions remain internal, this ambiguity remains manageable. However, it becomes more difficult to maintain when the organization must explain and justify the decisions it has made.

When Implicit Trade-offs Become Impossible to Defend

It is not the existence of pay gaps that is problematic. The directive permits pay differences when they are based on objective and gender-neutral criteria. It remains entirely possible to adjust pay to market conditions, recognize experience, or distinguish between levels of responsibility. What has changed is that the decisions leading to these gaps must now be explained, documented, and justified.

Transparency thus acts as an organizational “stress test.” It reveals not so much problematic discrepancies as a deeper difficulty: the absence of explicit rules regarding how trade-offs are made, validated, and accounted for. Consequently, the question is no longer simply whether compensation is consistent, but rather who within the organization is accountable for it.

WHO ACTUALLY DECIDES ON SALARIES WITHIN THE ORGANIZATION?

Four Questions Most Organizations Have Never Resolved

Who decides where a position is placed within the pay scale, and based on what objective criteria? Who approves exceptions to the pay scale, following what review process, and with what level of documentation? Who ensures cross-functional consistency across business units, job functions, and legacy job structures, a consistency that has been gradually eroded by the accumulation of local decisions? And who holds the final authority to represent the organization in dealings with an employee, a union representative, or a judge?

In most organizations, these responses exist in practice. But they are not documented anywhere, neither in an organizational chart of responsibilities nor in a designated process. This informal way of operating was sufficient as long as decisions remained internal. It breaks down, however, when decisions must be justified externally within regulatory deadlines. This is because responding to individual employee requests requires not only knowing who makes the decisions, but also understanding the criteria the organization uses to determine the relative value of jobs.

Comparing jobs means making value judgments

Behind the concept of “work of equal value” introduced by the directive lies a question that few organizations have truly resolved: What determines the value of a job?

The concept of work of equal value requires comparing distinct jobs based on four common criteria: the skills required, the effort expended, the responsibilities assumed, and the working conditions. This presupposes that the organization has previously determined the relative weight of these criteria. And this decision regarding weighting necessarily establishes a hierarchy of value among jobs.

The guide published by the Defender of Rights highlights that the weighting criteria are structurally biased in existing classification systems[2]. The competencies associated with predominantly female occupations have historically been undervalued, not by deliberate intent, but because they were difficult to quantify. Applying a systematic, criteria-based analysis will reintroduce dimensions that organizations were not accustomed to weighing together. For some positions, the result will change the position’s place in the value hierarchy, not just its numerical value.

Correcting this bias is not merely a technical adjustment. It is, in fact, a judgment call regarding what the organization decides to compensate, and that is precisely why it cannot be delegated solely to HR teams. It involves senior management, which must explicitly take responsibility for what the organization considers worthy of compensation—and at what level. Furthermore, these decisions must be identifiable, documented, and acknowledged as such.

The Absence of Decision Traceability as a De Facto Delegation of Authority

An organization whose salary decisions are not documented along with their rationale has already made an implicit decision: to leave the power to make final decisions to individuals without a formal mandate. The directive does not require the reconstruction of the entire history of individual decisions but does require the ability to justify deviations and the criteria on which they are based. The lack of traceability is not an administrative shortcoming: it is evidence of decision-making authority exercised in a context-dependent and largely unchecked manner. This power produces actual decisions, reflected in pay stubs, without anyone being able to fully account for them.

The directive will make this disparity untenable. Once an employee can request the criteria used to determine their placement, and once any discrepancy must be justified before a union representative or a judge, the lack of a formal mandate and traceability of decision-making becomes a direct liability.

The Joly Travail Bulletin highlights this point regarding job categorization, the first governance measure that the directive formally requires: it is a “major undertaking with uncertain parameters,” in which organizations that have not formalized their internal decisions will find themselves having to make them under pressure, facing counterparts who will have had time to prepare their own.[3]

Clarifying who has the authority to set pay, and under what conditions that authority is exercised—is thus the first concrete step in wage governance.

WHY SOME PAY DECISIONS BECOME IMPOSSIBLE TO DEFEND

The risk is not concentrated where the gap is greatest

Not all salary decisions carry the same level of risk. Some are based on identifiable criteria, explicit trade-offs, and sufficient documentation. Others result from a series of exceptions, local compromises, or classifications that have never been truly reviewed.

A common mistake is to focus governance efforts on situations where pay gaps are the largest in absolute terms. This is an understandable but misleading intuition. A significant, well-documented pay gap that is part of an explicit and consistent policy is often justifiable. A moderate gap, with no history, in an area that no one has ever subjected to a criteria-based review, can create a much more serious risk.

The real vulnerability does not lie in the size of the discrepancy. It's revealed by the soundness of the decision-making framework that produced it. The question, therefore, isn't "Where are my biggest discrepancies?" but "Where are my decisions the least defensible?"

The Four Signs of Weak Pay Governance

A compensation decision is organizationally exposed when it involves several factors that, taken separately, may remain manageable, but whose combination creates a real vulnerability:

• The lack of documented justification: The decision exists in the systems, but its basis has never been formalized. No one can explain why this approach was chosen over another, based on what criteria, or within what framework.

• A questionable classification: the position is assigned to a level or category whose assignment criteria have never been explicitly tested against a criteria-based analysis. These classification weaknesses are often concentrated in specific job areas and can be mapped through a targeted criteria-based analysis.[4] This makes it an actionable indicator from the very start of a risk mapping process.

• The existence of a comparable population that has not been analyzed: positions of potentially equivalent value have never been compared, either because they belong to different entities or business lines, or because the comparison had never been necessary. Cross-functional consistency across entities and business lines, which no one had formally addressed, leaves precisely these areas of unexamined comparability in its wake. This is where the directive will force unprecedented comparisons.
  
• The absence of an identifiable approval process: the decision was made, but the approval chain cannot be traced. It is impossible to determine who should have approved it or whether anyone actually did. The more these factors accumulate in a single decision or among a given population, the greater the exposure becomes and the more urgent the need for action.

Once these areas have been identified, the question of sequencing arises: in what order should governance efforts be undertaken to focus resources where exposure is greatest?

How to Prioritize Risks Before They Become Legal Disputes

Decisions that combine the dimensions identified above are the top priority. As they currently stand, they are both exposed and indefensible: no grounds can be cited in the event of a challenge, and no authority can take responsibility for justifying them. It is not the size of the discrepancy that sets them apart, but rather the impossibility of defending them.

It is essential to then identify the populations for which criteria-based analysis comparability has never been examined. In particular, this includes positions that span job categories with different gender distributions or entities with historically divergent practices. These are the areas where the directive will necessitate unprecedented comparisons, and where organizations that have not anticipated this comparison will find themselves forced to develop their position under pressure.

Finally, we must prioritize an issue that is all too often overlooked, yet is crucial: identifying and halting decisions made without a formal mandate that are still being made. The problem stems not only from a historical backlog of undocumented decisions but also from an ongoing stream: every hiring decision negotiated outside established procedures, every exception granted without documented criteria, constitutes a new vulnerability that adds to the existing backlog. Unless this flow is stopped, the first two phases are bound to be overtaken by the continuous creation of new vulnerabilities. Addressing the backlog without shutting off the flow is like trying to empty a bathtub with the faucet still running.

TAKE THE TEST!

Consider a salary decision made five years ago in your organization. Determine who approved it, on what basis, and using what criteria. Ask yourself whether this justification could be presented today by someone who wasn’t there at the time, to a person who has no reason to accept its underlying logic.

If the answer is yes, your organization likely already has certain governance elements in place, even if they have not yet been fully formalized. If the answer is no, or if the question itself reveals that there is no process in place to address it, the directive will not reveal anything the organization does not already know about itself. It will simply give the organization a reason to no longer be able to ignore it.

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[1]Walsh, J.P., & Ungson, G.R., “Organizational Memory , ” *Academy of Management Review*, vol. 16(1), 1991.

[2] Becker, M., Lemière, S., and Silvera, R., “Guide for a Non-Discriminatory Evaluation of Jobs Predominantly Held by Women , ” pp. 53–64, Défenseur des droits, 2014.

[3] Guirlet, C., “Job Categorization in the Context of Pay Transparency: A Major Undertaking with Uncertain Outlines , ” Bulletin Joly Travail, No. 5, CMS Francis Lefebvre, May 1, 2026.

[4] Becker, M., Lemière, S., and Silvera, R., “Guide for a Non-Discriminatory Assessment of Jobs Predominantly Held by Women , ” Défenseur des droits, 2014.