Employers in the European Union (EU) are currently coping with a range of economic challenges, including disrupted supply chains, reduced consumer demand, and increased competition. In addition to these, organizations are also faced with demographic changes, shifting cultural norms, and changing workforce expectations. 

Payscale recently published its Europe Edition of the Compensation Best Practices Report, which provides data and analysis of over 800 survey responses from organizations headquartered in Europe. The survey was fielded in late 2022 and included questions about compensation strategy, pay increases, and hot HR trends. 

Unlocking the potential of the EU Pay Transparency Directive 

One of the most pressing issues facing European nations today is the implementation of the EU Pay Transparency Directive, which aims to tackle the gender pay gap and promote pay transparency in the workplace. In March 2023, the European Parliament approved the Pay Transparency Directive by a vote of 427–79 (with 76 abstentions).  

This legislation is even more stringent than its counterparts that have passed in some U.S. states. It requires employers to provide pay ranges to job candidates and specific pay information to employees upon request, including average pay levels broken down by gender.  

In addition, employers will have to publish their gender pay gaps publicly, with some nuance on the requirements for organizations of different sizes plus penalties for both pay gaps and non-compliance. This legislation will become law in April of 2023, and member states will then need to transpose the elements of the directive into national law within three years. 

The EU Pay Transparency Directive can address the persistent gender pay gap in Europe; however, its implementation requires significant preparation on the part of employers. Data from the 2023 CBPR: Europe Edition serves as a guide for what organizations are doing when it comes to compensation overall, and it also provides information about how prepared organizations are to adapt to new pay transparency requirements. 

Pay communications in European organizations

A top challenge facing employers is how to communicate about pay now that more transparency will be required. The EU Pay Transparency Directive brings a new level of awareness and pay information to the forefront, and organizations have to figure out how to share it. From pay ranges in job postings and public pay gap reporting to increased visibility for employees about pay ranges, European employers will soon be legally required to provide more information than ever before.  

Those at the forefront of the pay equity and transparency movement are relieved to see these legislative changes; however, compliance will not be like flipping a switch. Most organizations want to be more transparent about how they pay but have some work ahead of them before they’ll feel confident in revealing their pay ranges. 

As pay transparency initiatives continue to progress, effective pay communication practices will become even more essential. When it comes to communicating about pay, 67 percent of organizations in Europe provide total rewards statements according to the CBPR. In addition, more than half (58 percent) are training their managers in how to have pay conversations with employees. 

Data and systems to support transparency 

The reasons that organizations fail to become more transparent vary. When we asked, the most common response from employers in Europe was that they lack confidence in the accuracy of their salary data (34 percent). Another 30 percent don’t have organized pay structures, and 27 percent are not confident in their pay strategy or structures.  

Historically, the process of collecting compensation data, uploading it to survey providers, and then analyzing it against the market was quite disjointed. Now, as they respond to the directive, employers are looking to put systems in place to evolve how they collect and analyze pay data.  

As for which data sources organizations use the most, the most popular types for those in Europe are salary survey data from traditional publishers (38 percent), free or open online data (36 percent), and HR-reported aggregate market data in compensation software (34 percent).  

According to survey respondents, the most trusted data sources for organizations headquartered in Europe are traditional surveys and HR-reported aggregate market data, with free salary data falling down the list. 

Comp strategies and HR tech 

To face the challenges of 2023, it’s no surprise that more organizations are investing in compensation strategy. The majority of survey respondents in Europe (79 percent) either have a formal compensation strategy/philosophy or are working on one. In 2023, more than half of organizations in Europe (55 percent) plan to adjust their strategy. 

“If you look at the macro picture, all our businesses have changed or are changing. We’re in a massive period of business transformation. Compensation strategy is part of that, and we are now in a period where there are so many challenges that people are having to address comp strategies more often. Organizations have to get in the best position for pay transparency, which requires some legwork,” says Ruth Thomas, Payscale’s Chief Product Evangelist.  

While many organizations may have compensation strategies in place, only 28 percent of those in Europe say they are mature enough to be “advancing” or “optimizing” their pay practices in 2023. 

Technology supports the creation and execution of processes that help organizations move up the compensation maturity curve. With nearly half (47 percent) of organizations in Europe stating that their compensation management maturity is “as needed” or “emerging,” it’s understandable that many are looking for software to help them advance. It appears to be a top priority for many, with 60 percent planning to either purchase it for the first time or evaluate their current system against alternative providers. 

Employee engagement 

The last few years have been challenging in terms of the labor market, and 2022 was no exception. The data reflects those challenges: 50 percent of European organizations said that labor challenges were greater in 2022 than in previous years.  

Average total turnover and voluntary turnover 

Responses to our survey indicate significant rates of turnover. Thirty-four percent is the average reported total turnover rate from organizations in Europe, and 43 percent is the average voluntary turnover rate. When we asked what was the most to blame for the voluntary turnover, 41 percent of organizations in Europe cited compensation.  

The high rate of voluntary turnover seems to indicate a bargaining-power shift to employees, which makes compensation an essential element in retaining talent. Companies will have to flex and adapt to meet the demands of a selective, informed, and savvy workforce. 

Quiet quitting  

In our survey, we also asked employers to tell us whether they are concerned about employees “quiet quitting,” and we intentionally used inflammatory language and split answer choices to force a perspective. For organizations headquartered in Europe, 45 percent said that they were worried about quiet quitting. 

Trends like this are unlikely to go away in 2023, especially if there is a recession that causes more layoffs and increased burnout for people who manage to hang onto their jobs without pay increases or promotions. For employers concerned about retaining talent, preventing quiet quitting will require total rewards strategies that engage employees.  

Comp research and insights for employers in Europe

European employers are facing a range of economic and societal challenges, including implementing pay strategies that enable them to abide by the new EU Pay Transparency Directive. The 2023 CBPR: Europe Edition is a valuable resource that analyzes the data so that companies can gain valuable insights into current compensation trends and make informed decisions about how to adjust their own compensation strategies in the coming months.

For the past 14 years, Payscale’s Compensation Best Practices survey has collected data from compensation and HR professionals. Sign up here to participate next year.