- within Employment and HR, Food, Drugs, Healthcare, Life Sciences and Privacy topic(s)
Forty years ago, the CEO of a Brazilian manufacturer, Semco, opened the company’s books and discovered that, in this case, full financial transparency produced better decisions and higher revenue. What Ricardo Semler did voluntarily at Semco, the EU Pay Transparency Directive now requires — in a considerably narrower form — of every employer in Europe.
On its surface, the directive's demand is modest: employers must be able to explain why they pay what they pay. In practice, for many organizations, that question will prove harder to answer than expected.
In June 2026, the transposition of the EU Pay Transparency Directive should occur, and organizations in Portugal will be subject to thata framework, which requires a genuine reckoning with how pay decisions are made, documented, and - most of all - justified.
More than a simple compliance exercise, the directive turns a long-standing legal principle into an operational management requirement: employers must be able to show that employees performing equal work, or work of equal value, are paid equally. Where differences exist, they must be explainable by objective, gender-neutral criteria — and employers will carry the burden of proving that those differences are not discriminatory.
Organizations that begin this process now, will have the significant advantage of time. Their process of addressing findings and coming into compliance can be deliberate and strategic, rather than reactive.
The core concept: work of equal value
Following from this principle, there is a deceptively simple question: “what counts as work of equal value?”.
As already known by the companies, the directive establishes that the determination of whether employees are performing work of equal value must be assessed based on objective, gender-neutral criteria. However, the real innovation is an express obligation for employers to develop or adopt a job evaluation methodology capable of applying these criteria consistently across the company’s roles.
Even though the Portuguese law already foresees some obligations in this context, there is a new demand: providing a detailed framework for deciding when two roles constitute work of equal value.
The difficulty of defining equal value
Equal pay claims are relatively straightforward when two employees hold the same position. The harder question — and the one the directive brings into sharper operational focus — is how employers assess pay fairness across different roles that may nonetheless be of equal value.
This raises immediate questions: can a logistics coordinator be compared with an HR specialist? Can a software developer’s contribution be measured against that of a financial analyst? Under the directive, the answer may be yes — provided the comparison rests on a sound evaluative framework applied consistently across the relevant criteria.
In practice, designing that framework involves judgment calls that will inevitably be tested. Organizations will need to decide not only what they measure, but how they weigh different forms of skill, effort, responsibility and working conditions.
One of the most sensitive questions is whether market value — for example, the scarcity premium attached to certain skills or roles — can justify pay differences between jobs that are otherwise of equal value.
Market factors may, in principle, explain certain differences. But under the directive’s framework, a generic reference to “market practice” or “industry benchmarks” will not be enough. Employers will need to demonstrate a genuine, specific and proportionate link between the market factor invoked and the pay differential at issue.
This is particularly relevant in sectors where compensation practices have developed informally or reactively, often through individual negotiation, retention pressure or recruitment urgency. Those explanations may still matter, but they will need to be documented and defensible.
Subjectivity in evaluation
Job evaluation methodologies inevitably involve judgment. Under this directive, organizations must choose which criteria to prioritize, how to weigh them, and how to apply them to concrete roles.
This is where the risk of indirect discrimination becomes more evident. A job evaluation system that gives disproportionate weight to physical effort, for example, may risk undervaluing less visible forms of effort and responsibility — such as emotional labor, communication, coordination or care-related responsibilities — that are common in many female-dominated roles.
The directive’s insistence on gender neutrality means that the evaluation system itself must be defensible. It is not enough to apply criteria consistently. The choice and weighing of those criteria must also be justifiable.
Preparing to comply
Compliance with the directive may not rest on vague or generic conclusions. It requires organizations to genuinely understand how they make pay decisions and to be able to justify those decisions.
That process begins with uncomfortable but necessary questions: what criteria are used when setting salaries for new hires? Does a pay review policy exist, and if so, what guides it? How are differences between similar — or different but potentially equivalent — roles justified?
In practice, many companies will find that their pay criteria are implicit rather than documented, that they are inconsistently applied or that they simply do not exist.
The task ahead is therefore not merely to describe existing practice. It is to build or adopt a methodology that can withstand scrutiny — from employees exercising new rights to pay information, from authorities, and courts applying the reversed burden of proof in discrimination claims.
Beyond compliance: a strategic opportunity
Preparing for the directive is also an opportunity for organizations willing to treat it as such. The process of mapping role structures, documenting evaluation criteria, and measuring existing pay disparities does more than satisfy a legal requirement. It surfaces inconsistencies before they become disputes, strengths governance and management decision-making, and builds the kind of internal coherence that employees and candidates increasingly expect.
The experience of companies that have voluntarily embraced pay transparency shows that the results can be positive. Semco is the paradigmatic example, but the principle holds more broadly. The ability to justify pay decisions clearly and confidently is becoming a core management competency, as relevant as performance evaluation or objective-setting. Pay transparency is no longer purely an HR matter. It touches strategy, reputation and an organization's ability to attract and retain talent in a market increasingly attentive to the coherence between what companies say and what they do.
For that reason, this is a matter for leadership as much as for HR.
Conclusion
The EU Pay Transparency Directive does not prevent pay differentiation. It does not prohibit individual negotiation. It does not require equal salaries for all.
What the directive requires is that differences are grounded in objective criteria — skills, effort, responsibility and working conditions — and that those criteria are applied through a methodology capable of comparing roles on a gender-neutral basis.
The directive, in essence, questions what criteria were used to determine this employee’s salary, and how do those criteria relate to the remuneration of their peers.
For organizations that can respond with data, methodology and consistency, the directive presents no threat; the companies who engage seriously and proactively with these questions now will be well-positioned to navigate what comes next.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
[View Source]
