Is the United States Ahead of Europe in Pay Transparency?

Jun 30, 2025

The question of pay transparency is gaining increasing importance in both the US and Europe. While the US may appear to be a pioneer in some aspects, a closer look reveals a more nuanced picture. This blog post examines the developments on both sides of the Atlantic and analyzes the implications for businesses and HR experts.

Developments in the US and Europe

USA: Early Start with Limitations

As early as 2020, some US states introduced laws requiring the disclosure of salary ranges. By early 2023, major economic centers like California and New York followed suit, giving significant momentum to the pay transparency movement. This early adoption might create the impression that the US is leading in pay transparency.

Europe: A More Comprehensive Approach

The European Union passed a directive in spring 2023, requiring member states to enact corresponding laws within three years. Although introduced later, the European approach is in many ways more comprehensive and aims to avoid loopholes that some US laws partially exhibit.

Key Differences Between the Approaches

Scope of Transparency
 
A significant difference lies in the scope of compensation components covered:
  1. USA: Transparency laws mainly refer to base salaries. Commissions, stock options, and bonuses are often exempt.
  2. EU: The European directive considers all forms of compensation, including bonuses. There is still a need for clarification regarding stock-based compensation.
 
Impact on Discretionary Bonuses
 
The non-inclusion of bonuses in US laws has led to increased use of this form of compensation. Companies use this to reward and retain top talent while complying with legal requirements.
 
However, this practice carries risks:
  1. An ADP study shows that women receive, on average, less than two-thirds of the bonus payments made to men with the same base salary, age, and tenure.
  2. The European directive addresses this issue by including all forms of compensation.

Challenges for HR and Companies

The more comprehensive European regulation presents new challenges for HR professionals and companies:

Reversal of Burden of Proof
The EU directive reverses the burden of proof in cases of pay inequality. In the future, companies will have to prove that their decisions are fair and non-discriminatory.

Objective Criteria for Performance Evaluation
Every compensation decision must be based on objective, gender-neutral criteria and be verifiable. This makes it more difficult to reward individual performance without substantial justification.

Risk of Leveling
There is a risk that companies may tend to equalize salaries to avoid risk, which could make it harder to reward exceptional performance.

Strategies for the Future

HR experts and companies have two fundamental options:

 

  1. Alignment of Compensation: A low-risk strategy that, however, risks losing top talent.
  2. Development of Transparent Performance Evaluation Systems: A challenging but forward-looking option that allows rewarding individual performance while avoiding discrimination.

Conclusion

The question of whether the US or Europe is leading in pay transparency cannot be answered definitively. While the US started earlier, the European approach potentially offers a more comprehensive solution to combat pay inequalities.
 
For HR experts and corporate leadership, this means:
  1. Developing clear, fair, and transparent compensation systems will be essential.
  2. Performance evaluations must be based on objective criteria and well-documented.
  3. Balancing performance incentives and equal treatment will be a central challenge.
 
The era of pay transparency offers the opportunity to create fairer and more effective compensation structures. Companies that embrace this challenge can gain a competitive advantage in attracting and retaining talent.

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