Many mid-sized companies have an HR team capable of effectively managing day-to-day operations. However, they do not always have a formalized compensation structure, clearly documented salary progression criteria, or sufficiently traceable pay decisions. This is precisely what Directive (EU) 2023/970 on pay transparency is set to change.
Much of the discussion has rightly focused on reducing the gender pay gap threshold and on new transparency and reporting obligations. However, it would be a mistake to view this as a regulation that only affects pay registers or reporting formats. Its impact goes much further: it requires organizations to reassess how salaries are determined, how differences are justified, and how compensation policies are communicated, among other aspects.
For many companies, the real challenge will not be identifying pay gaps exceeding 5%, but rather being able to explain—based on objective, neutral, and consistent criteria—why these differences exist and why they are justified and non-discriminatory. This is where many organizations are likely to face their greatest difficulties.
In many companies, compensation has evolved over time through a combination of salary history, individual negotiations, non-standardized promotions, ad hoc adjustments, counteroffers, or decisions made under varying criteria depending on the business unit or manager. These decisions are often insufficiently documented. While this does not necessarily imply poor practices per se, it does create inconsistencies that are difficult to sustain in a more transparent environment.
The Directive introduces a framework in which discretion has less room. Companies will need to provide clearer information about their compensation criteria, salary progression, and the starting salary or salary range for a position prior to hiring. This fundamentally changes the rules of the game, both externally and internally.
Externally, publishing salary information during recruitment processes will make each company’s pay practices far more visible, leveling the playing field in negotiations. Internally, employees will have greater access to information to understand—and potentially challenge—how pay decisions are made. As a result, the conversation will extend beyond the gender pay gap to include broader questions about internal equity, consistency across comparable roles, and career progression criteria, even where these are not explicitly covered by the Directive.
In this context, job evaluation ceases to be purely formal or compliance-driven exercise and becomes a central component of the system. Organizations seeking to structure their pay, build coherent salary bands, and reduce hard-to-justify pay differences will need a robust job architecture aligned with their operational reality. Disparate job descriptions or legacy grading structures are no longer sufficient; what is required is a clear internal logic linking contribution, responsibility, and pay positioning.
This leads to an uncomfortable but necessary question: is the company’s compensation policy truly built on an objective job and grading structure? If the answer is negative or only partially affirmative, this is likely to be one of the key areas requiring attention.
A second major issue relates to formalization. The Directive pushes companies to make explicit the criteria used to determine pay, salary levels, and progression. This forces organizations to confront a common reality: such criteria often exist, but they are not structured, not consistent, not documented, or not easily explainable in a coherent way across the workforce.
For many mid-sized companies, this is particularly sensitive. Typically, there is already an HR function and, in many cases, a genuine commitment to doing things properly. However, organizational maturity may not match that of large corporations. There may be no fully defined compensation policy, no consolidated banding system, no fully implemented job evaluation methodology, or no consistent pay governance across business units, locations, or functions. The Directive will shine a light precisely on these grey areas.
It is therefore important to avoid an overly simplistic reading of the regulation. This is not merely a transparency requirement—it is a call for professionalization. Companies will need to demonstrate that their compensation systems are based on objective logic, that recruitment and promotion processes are aligned with that logic, and above all, that these criteria are non-discriminatory. Equally important is ensuring that managers are equipped with sufficiently robust frameworks to handle these increasingly sensitive and complex discussions.
Some organizations may still consider this a secondary priority, either because the Directive has not yet been transposed into Spanish law or because the initial milestones seem distant. However, waiting until the last moment would be a mistake. When a company realizes that its fundamental pillars—job evaluation, salary bands, criteria, processes, and decision traceability—are not adequately in place, the margin for action is often much smaller than anticipated.
Moreover, this regulation does not arrive in isolation. It is accompanied by a framework that strengthens enforcement, increases evidentiary requirements, and heightens reputational exposure. In other words, it will not be enough to intend to do things well; companies will need to prove it.
The good news is that, if approached correctly, the Directive also presents an opportunity: to review job evaluation practices, bring order to compensation policies, strengthen objectivity in recruitment and promotion processes, improve consistency across functions, and enhance the employee value proposition. In a labor market where attracting and retaining talent is increasingly challenging, having a clear, coherent, and explainable compensation model becomes not just a regulatory requirement, but a competitive advantage.
Ultimately, the key question is not whether the Directive will require salary increases or adjustments in specific cases—although in some instances it will. The real question is whether the company is prepared to rigorously explain why it pays as it does, why it promotes as it does, and why it considers its decisions fair. For many organizations, that will be the true test.
Manuel López Franco
Director, Organizational Strategy and Compensation Consulting Area, Sagardoy
