Pay transparency means pay criteria that are accessible, understandable and fair to all employees. It's not just about publishing pay scales, but about promoting a culture of fairness, where progression and compensation criteria are clear and accessible to all, and unjustified pay inequalities are eliminated (Brown et al., 2022). Transparency includes practices such as the publication of salary bands in adverts, internal disclosure of salary progression criteria and periodic reports on internal pay equity (Cullen & Pakzad-Hurson, 2022), but its impact goes far beyond the communication of salaries.

Companies that adopt transparent salary policies reinforce employee trust and satisfaction, increase the engagement, retention and attraction of talent, as well as its reputation in the marketplace (Beatty, 2021; Cullen, 2023). When salary criteria are clear, employees feel more valued and committed to organisational goals. In addition, transparency makes it easier to attract talent by letting candidates know the salary conditions in advance, avoiding future frustrations (Beatty, 2021). However transparency is not just a factor of competitiveness - it is an imperative to correct systemic inequalities. Pay equity remains one of the biggest challenges in building fair and diverse working environments (OECD, 2023), and pay transparency has emerged as one of the most effective tools for reducing the pay gap, by ensuring that gender, ethnicity or other factors are not decisive in setting pay (Obloj & Zenger, 2022). Its absence, on the other hand, perpetuates historical inequalities and hinders the economic empowerment of underrepresented groups (Heisler, 2021).

Clearly, in addition to being an ethical and legal imperative, salary transparency is a strategic tool for companies that is redefining the relationship between organisations and employees. Legislation, which obliges companies to justify disparities of more than 5% (European Pay Transparency Directive, 2023), is just one piece of the puzzle - for transparency to have a real impact, organisations must translate this commitment into concrete and integrated actions.

Even so, not all companies are ready for this change. The fear of dissatisfaction when exposing internal inequalities or the complexity of reviewing their salary structures means that many resist transparency, despite the obvious benefits, pressing demands and market expectations. However, maintaining opacity is not a sustainable solution. Studies show that companies that avoid this transition end up facing greater internal instability and difficulties in retaining qualified talent, jeopardising their long-term competitiveness (Bennedsen et al., 2022; Cullen & Pakzad-Hurson, 2022). As with everything, change can be challenging, but in this case the lack of action can be even more damaging. So what to do?

The first step is to conduct a structured internal diagnosis, This includes the evaluation and qualification of functions and the analysis of pay equity to guarantee coherence between responsibilities and remuneration and to identify and correct disparities.

A strategic communication is another essential factor. Salary transparency requires continuous work to explain the criteria for remuneration, progression and benefits. Studies such as Heisler's (2021) show that a lack of clarity in salary communication can generate as much dissatisfaction as a lack of transparency. To avoid this, it is essential to train leaders and HR teams to communicate these policies clearly, consistently and in line with organisational values.

Technology also plays a key role in this process. Tools for analytics e reporting, Digital solutions allow companies to monitor and communicate their progress consistently. Digital solutions help not only with legal compliance, but also with fostering trust and a perception of fairness within the organisation.

Last but not least (by no means least), pay transparency cannot be seen as an isolated initiative, but rather as part of a broader approach to fairness and strategic talent management. To ensure that its implementation is effective, companies must integrate transparency with clear performance appraisal processes, well-defined promotion criteria and career models, and robust DEI policies.

The era of wage transparency represents an essential step towards a fairer world of work. Avoiding transparency is not only an obstacle to organisational progress, but a factor that maintains structural inequalities that affect both companies and society. The future belongs to organisations that understand that fairness and success are inseparable. In a world where information is increasingly accessible, the real competitive advantage lies not in hiding, but in leading with integrity. Transparency isn't the future of work - it's the present. And companies that resist it risk being left behind.

Wage Transparency: The Legal Framework in Portugal and the European Union

Concerns about unequal pay are also reflected in national and EU legislation. The legislative approach is necessarily based on the available data: today, wage inequality rates are around 8.6% in Portugal and 12% in the European Union[1].

In Portugal, the issue of equal pay is not new. Under Law no. 60/2018, of 21 August, employers must, on the one hand, adopt a transparent remuneration policy and, on the other hand, promote plans to assess gender pay gaps, something which, as is well known, has been particularly monitored by the Authority for Working Conditions (“ACT”).

At European level, the concern for gender equality in pay dates back to the founding of the Union itself. However, given that the gender pay gap persists, in April 2023 the Council adopted Directive (EU) 2023/970 to combat the gender pay gap.

The Directive, which is due to be transposed in June 2026, provides, among other things, for a ban on employers questioning candidates about past pay, as well as an obligation to justify pay disparities of more than 5% between male and female workers. The Directive also gives candidates and workers the right to transparent information on levels, criteria for setting and progressing pay and to compensation in the event of arbitrary pay discrimination. 

In the era of pay transparency, there are no shortage of opportunities: for workers, namely access to information about pay disparities and the possibility of unionising them, and for employers, namely positive differentiation through compliance and good practices in an increasingly dynamic, demanding and competitive labour market.

[1] European Parliament data available online at Understanding the gender pay gap: definition, facts and causes | Themes | European Parliament

Carolina Gonçalves, Consultant, SHL Portugal
Pedro Ferreira de Sousa, Principal Consultant, VdA
Inês Anjos, Junior Associate, VdA


Published in Human Magazine on 2/6/2025