Yes, Total Compensation Needs Transparency Too!

You’ve heard me talk about pay transparency (a lot!). And most of the questions I receive are about how you can compare salaries to achieve equal pay. But pay transparency isn’t just about paychecks—it’s also about comparing total compensation. While most discussions around pay transparency focus on salary, you can’t achieve equal pay when employees don’t have equal access to bonuses, stocks, or other benefits. And because these benefits can represent a large portion of someone’s take home pay, unequal access to compensation adds up pretty quickly.

The EU Pay Transparency Directive requires employers to report separately on salary and on total compensation. And while salary numbers are easily accessible in your HR and/or payroll solution, compensation often contains elements that are spread over a number of systems. You’ll need to do more work to centralize all that data and get an accurate picture. So, this week, I’ll answer some questions I received on the topic of compensation reporting.

How does the EU Pay Transparency Directive define total compensation?

When only salary is transparent, employees can still face hidden inequalities in the additional elements of pay. The Directive requires organizations to report on all elements of compensation—not just base pay. Employers must ensure these elements are distributed fairly across employees, regardless of gender or other protected characteristics. This is what the Directive states in Article 21:

Under complementary or variable components, any benefits in addition to the ordinary basic or minimum wage or salary, which the worker receives directly or indirectly, whether in cash or in kind, should be taken into account. Such complementary or variable components may include, but are not limited to, bonuses, overtime compensation, travel facilities, housing and food allowances, compensation for attending training, payments in the case of dismissal, statutory sick pay, statutory required compensation and occupational pensions. The concept of pay should include all elements of remuneration due under law, collective agreements and/or practice in each Member State.

Total compensation includes every monetary and non-monetary benefit an employee receives. This means not just their base salary but also bonuses, stock options, commissions, profit-sharing, pensions, allowances, and even perks like healthcare or childcare benefits.

Why does total compensation transparency matter?

When you look at salary alone, that doesn’t give you the full picture of equal pay. Think about two employees with identical base salaries: they can have very different total compensation packages. This hidden variation leads to compensation inequality.

Or consider these examples:

• A male employee might receive significantly larger performance bonuses than his female colleague in the same role
• One team member could get more generous stock option allocations
• Some employees might have access to larger professional development budgets than others

These imbalances must be disclosed and addressed. When you can’t explain why the differences exist based on objective criteria, you might be looking at inequality in compensation.

How does unequal compensation happen?

Unequal distribution of bonuses, commissions, or stocks can often be traced back to certain events in your compensation practices, where people don’t apply the compensation philosophy in the correct way:

1. Discretionary practices: When managers have too much latitude in awarding bonuses or stock, unconscious biases can creep in.
2. Role classifications: Certain roles may be disproportionately occupied by one gender, and these roles may have fewer variable compensation opportunities.
3. Negotiation disparities: Employees who are less likely to negotiate may end up with lower bonuses or fewer stocks.

While some of the reasons are more difficult to address (like roles), others can be avoided by ensuring that managers and employees are aware of the compensation philosophy and receive training on the guidelines. You should communicate often about your practices and create an environment where employees can freely bring up these topics without fearing retribution.

What are practical steps to ensure transparency in total compensation?

Fortunately, the way to ensure transparency in compensation is similar to salary transparency. You don’t need a separate process. Once you’ve laid out your practice in your compensation philosophy (which documents pay & all benefits elements) you can apply this throughout your organization. Here are a few pointers to maintain equal compensation practices:

1. Standardize criteria: Define clear, measurable criteria for awarding compensation elements like benefits, bonuses or stocks, to remove subjectivity.
2. Communicate policies clearly: Employees should understand how all elements of pay are calculated and awarded.
3. Audit your practices: Regularly review how compensation is distributed across teams. Look for patterns of inequity.
4. Include total compensation in pay reports: The EU Directive demands it, and pay transparency isn’t complete without it.

By clearly communicating this information, managers and employees will better understand and trust your compensation practices.

Isn’t this going to be a lot of extra work for HR?

Let me be completely clear: yes, measuring compensation transparency is more complex than pay transparency. You must first establish an overview of all compensation elements that have been awarded, and determine where they are stored in the systems. Sometimes, you’ll find that managers have awarded benefits in kind, and they are not properly documented. You must then make sure that the compensation packages of individual employees have been registered without errors. And before you can accurately measure, you should find a way to value all these elements and calculate total compensation. During this project, like with pay transparency, you’ll undoubtedly find employees that have not been awarded the full benefits & compensation they are entitled to. So you’ll also need to set up a budget to correct disparities.

Compensation transparency does take effort, but it’s also a chance to improve your pay practices, strengthen trust with employees, and ensure compliance. Plus, with the right tools, much of this reporting can be automated. Note that HR solutions often can’t track total compensation, so you might need a separate tool to measure and compare, and generate reports aligned with the Directive’s requirements.

What’s the risk of ignoring total compensation transparency?

A few people asked me if they can first implement pay transparency and then add compensation later. While you can run these projects sequentially, you’ll need to be done by June 7, 2027. This is when the first reporting period expires for companies with 150 employees or more. Non-compliance with the EU Directive can result in penalties, legal challenges, and damage to your employer brand. Beyond compliance, hidden pay inequities can hurt employee morale and retention. Once you start to address pay transparency, employees will gain a better understanding and inevitably bring up compensation. Make sure you have a communication narrative defined if you want to separate these projects. Transparency isn’t just a legal obligation—look at it as a competitive advantage to show that you are a modern and reliable employer who pays fairly.

Final Thoughts

Compensation transparency is about more than just meeting legal requirements. It’s about fairness, trust, and creating a workplace where everyone knows they are valued equally. By addressing total compensation now, you not only stay ahead of the EU Pay Transparency Directive but also position your organization as a leader in equity and inclusion.

Do you have questions or need some guidance? Let me know – I’ll keep it confidential!