GENDER PAY GAP AND SMEs
Article published in the AIDP magazine

Directive (EU) 2023/970 of the European Parliament and of the Council, adopted on 10 May 2023, introduces measures to strengthen the application of the principle of equal pay for men and women through pay transparency and enforcement mechanisms. This directive represents a significant change in the employment law landscape, imposing new rules to combat gender pay discrimination. Although many Italian SMEs tend to treat the topic as already embedded within ESG (Environmental, Social, Governance) activities, without giving due consideration to the specific and distinct compliance requirements involved, pay transparency constitutes a specific and autonomous obligation that requires rapid and structured adjustment. The European directive on pay transparency introduces a series of challenges and opportunities for SMEs, which must address and manage its impact on people management and organizational dynamics.

Risks for SMEs, between compliance and resistance to change

The introduction of the directive entails a series of obligations and compliance requirements for SMEs, especially for those unprepared to undertake a structural review of their pay policies. Companies with at least 100 employees will be required to periodically provide detailed reports on pay levels, clearly illustrating statistically significant pay gaps, including historical ones, under penalty of significant sanctions. Such differences must be justified through objective criteria, supported by regulations that are known and consistently applied, and to which reference can be made in order to challenge any unfair treatment. Even companies with fewer employees will need to ensure clear and transparent criteria to avoid legal disputes and reputational damage, as specified in Article 9 of Directive (EU) 2023/970.

And here the first question arises: are SMEs prepared to properly collect and update this type of data, which often concerns many elements of total compensation? If even multinationals and large companies, supported by functional teams and consulting firms, face operational and managerial difficulties in managing and updating data that is often not systematized, for SMEs, mutatis mutandis, the situation, with limited methods and small HR teams, may be far more complex.

Directive (EU) 2023/970 also provides for the adoption of digital tools to monitor pay and career progression processes, obliging companies to equip themselves with data-driven management systems. Finally, communication and employee involvement are crucial: informing employees transparently about new pay policies and creating opportunities for dialogue to gather feedback makes it possible to improve the adopted system and strengthen internal trust.

Directive (EU) 2023/970 on pay transparency does not represent only a regulatory obligation, but also an opportunity for Italian SMEs to review and improve their organizational models. The required change is not only technical, but deeply cultural: it imposes a rethinking of the role of leadership, people management, and the construction of a fairer and more sustainable working environment. Companies that are able to anticipate and govern this process will not only avoid legal risks and sanctions, but will also gain a strategic advantage in a labor market increasingly oriented toward transparency and social responsibility.

In conclusion, despite resistance and opposition in the name of entrepreneurial freedom, the regulation will push Italian SMEs toward a more modern approach, based on two key pillars of management: data-driven decisions and transparent communication, capable of enhancing merit, reducing discretion, and promoting inclusiveness.

Moreover, from the standpoint of managerial culture and maturity, implementing pay transparency requires a change in mindset within management, which is often accustomed to a discretionary approach to pay. Resistance could emerge especially in more traditional organizations, where corporate culture has not yet fully internalized the principle of gender equality. In addition, SMEs must equip themselves with advanced analytical tools to monitor the gender pay gap and ensure compensation policies based on objective and neutral criteria, as required by Article 4 of the directive. This entails investment in technology and training for the HR department and for people managers more broadly.

A significant impact will also be felt in recruitment and people management. Head hunters and recruiters will have to adapt to new transparency standards, operationally changing the way they contact and source candidates, avoiding practices and short-list presentations to the final client that take into account the candidate’s starting package and that, even if unintentionally discriminatory, would not guarantee, in the long run, the achievement of fairness in the compensation packages offered to candidates of both genders. The prohibition on requesting information about a candidate’s previous pay levels, established by Article 5 of the directive, will significantly change selection practices, imposing greater objectivity in job offers and giving candidates the right to refuse to provide such information during the selection phase by invoking the regulation. Those who may have suffered discrimination in the past will thus be able to seize new opportunities for potential realignment with the market, regardless of the contingent situation. For SMEs, where word of mouth is often a source of hiring, the impossibility of openly asking for such information represents a disruptive element in talent acquisition. Job evaluation and the use of compensation surveys, in order to correctly price a job offer and ensure internal equity at least by job family and organizational level, have always been practices that were not very widespread below the medium-sized Italian company cluster.

Opportunities for SMEs, beyond compliance and toward competitive advantage

If approached strategically, the directive can become an opportunity for SMEs, promoting a fairer and more transparent management of human resources. Companies that adopt pay transparency as a distinctive value can attract talent and strengthen their image in the market. In a context where social sustainability is becoming increasingly important, being pioneers in pay equality can represent a competitive advantage.

Clarity regarding pay policies reduces dissatisfaction and improves climate, motivation, and productivity. In addition, the need to manage compensation policy in a more structured way will inevitably lead to rewarding and selecting managers capable of developing greater awareness of internal equity dynamics and the enhancement of skills, promoting a more responsible and inclusive leadership model. Companies that demonstrate a concrete commitment to reducing the gender pay gap could benefit from tax incentives or better access conditions to financing linked to social sustainability. According to Italy’s PNRR, funding for companies that comply with ESG parameters, including pay equality, represents a strategic growth lever.

However, in the context of the new pay transparency regulation, the shift of the burden of proof onto companies could amplify the risk of litigation. In the absence of clear criteria of transparency, fairness, and managerial accountability, companies may find themselves exposed to requests, including instrumental ones, for detailed information on individual and collective pay history. This could not only fuel legal disputes with the requesting parties, but also encourage actions by other stakeholders entitled under the regulation to raise claims and inquiries, including former employees, trade unions, inspection bodies and supervisory authorities, the media and public opinion, as well as competitors. The risk of disputes is even higher in cases of intersectional discrimination, where factors overlap and increase ambiguity in evaluation, such as gender, maternity, ethnic origin, or skin color, aspects that are particularly relevant in an increasingly multicultural Italian society.

How to prepare: key actions SMEs should adopt

To effectively address the transition toward pay transparency, SMEs must quickly adopt a proactive and structured approach, making full use of the time that separates us from the directive’s entry into force.

The first step is to conduct an in-depth pay audit to analyze salary distribution within the organization, identify any discrepancies, and prepare a corrective action plan, in line with Article 7 of the directive.

It is essential to define objective criteria for determining salaries, based on skills, performance, and responsibilities, eliminating any margin of unjustified discretion. To this end, it is crucial to equip the company with clear and accessible documents and regulations capable of justifying every decision relating to employees’ economic treatment.

Investing in training programs to raise awareness among business leaders about pay equality and fair people management is a key element in ensuring effective and informed application of the new provisions.

Directive (EU) 2023/970 also provides for the adoption of digital tools to monitor pay and career progression processes, obliging companies to equip themselves with data-driven management systems. Finally, communication and employee involvement are crucial: informing employees transparently about new compensation policies and creating opportunities for dialogue to gather feedback allows the adopted system to be improved and internal trust to be strengthened.

Directive (EU) 2023/970 on pay transparency does not represent only a regulatory obligation, but also an opportunity for Italian SMEs to review and improve their organizational models. The required change is not only technical, but deeply cultural: it imposes a rethinking of the role of leadership, people management, and the construction of a fairer and more sustainable work environment. Companies that are able to anticipate and govern this process will not only avoid legal risks and sanctions, but will also gain a strategic advantage in a labor market increasingly oriented toward transparency and social responsibility.

In conclusion, despite resistance and opposition in the name of entrepreneurial freedom, the regulation will push Italian SMEs toward a more modern approach, based on two key pillars of management: data-driven decisions and transparent communication, capable of enhancing merit, reducing discretion, and promoting inclusiveness