Pay Transparency Levels Explained

With the EU Pay Transparency Directive set for full implementation by June 2026, pay transparency has moved from a nice-to-have to a business essential. Yet companies interpret "transparency" differently: what to share, how much, and with whom.

This guide explores what pay transparency truly means and how to implement it thoughtfully across five progressive levels.

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What is pay transparency?

Pay transparency goes beyond posting salary bands on job ads. It’s the deliberate practice of sharing and explaining your compensation framework so employees and candidates understand how pay decisions are made.

Transparency doesn’t require revealing every individual’s salary, it’s about creating clarity around principles, ranges, and processes. Done right, it builds trust, reduces speculation, and aligns your teams around a shared understanding of rewards and growth.

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The 5 Levels of Pay Transparency

Transparency exists on a spectrum. Here’s how to assess where your organization stands, and where to aim next:

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Level 1: Complete opacity
Employees only know their own pay. No context about ranges, philosophy, or decision criteria.

Level 2: Philosophy overview
Employees understand the company’s high-level compensation principles (e.g., "We pay at market median" or "Performance drives 70% of increases").

Level 3: Policy sharing
Full access to compensation policies, including how raises, promotions, and bonuses are determined. Managers see team ranges to monitor internal equity.

Level 4: Personal positioning
Employees know their position within their range (e.g., "You’re at 85% of your band") and can see the next level’s range to understand growth paths.

Level 5: Full visibility
Complete access to all pay ranges across job families, enabling employees to benchmark themselves against peers.

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Most mature organizations operate at Levels 2-3, balancing clarity with privacy while preparing managers to lead informed discussions.

While still a non-negligeable proportion of companies do not share any information, those who structure a compensation philosophy are communicating relevant information to train managers on compensation discussions and promote internal equity during reviews.

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Are You Ready for Greater Transparency?

Before increasing what you share, audit your foundations. Ask these critical questions:

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1. Do you have strong compensation foundations?

• Is your compensation philosophy documented and shared?
• Do you maintain current, market-aligned pay ranges?
• Are pay equity gaps reviewed annually?

2. Are decisions consistent and explainable?

• Do raises follow clear criteria (performance, position in range, tenure)?
• Are inequities proactively corrected during review cycles?
• Can managers confidently defend every pay decision?

3. Are managers equipped to discuss compensation?

Trained managers turn transparency into a strength. They explain ranges, growth paths, and tough decisions without defensiveness. Without training, even clear policies create confusion.

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Building a compensation philosophy

Structuring a consistent compensation strategy may take some time in practice, but it is a very important part of ensuring your pay decisions are being driven from factors decided at a company level. Your philosophy outlines the path a company applies when deciding on compensation topics, and you can decide the level of transparency based on your company’s culture.

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Link performance to rewards

Create objective performance ratings tied directly to compensation outcomes. During reviews, bonuses, or promotions, employees see how their contributions translate to pay.

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Implement clear leveling and ranges

A structured career ladder with defined pay bands gives employees a roadmap: "Master Level 3, and your range expands by 25%." Managers gain guardrails for consistent decisions.

When you are confident that the framework you established is working well, It will be also easier to share more information towards employees and candidates when relevant.

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Shared recommendation policies

Provide managers with matrices combining performance scores and range position:

• Low performer at range bottom: Market adjustment only
• Top performer mid-range: Promotion + increase
• Solid performer at range top: Spot bonus instead of raise

This approach naturally corrects inequities and makes decisions defensible.

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Tailor Transparency to Your Context

There’s no universal "right" level, Level 3 works for most scaling companies. The goal: enough information to eliminate guesswork without compromising competitive edge or privacy.

Start small, build confidence:

1. Document and share your philosophy
2. Train managers on ranges and decision frameworks
3. Gradually reveal personal positioning
4. Monitor feedback and equity metrics

Avoid common pitfalls:

• Sharing ranges without context (creates entitlement)
• Revealing individual pay without consent (breaches privacy)
• Over-promising on transparency without fixing inequities first

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Why Transparency Drives Growth

Clear compensation practices reduce turnover by 20-30% in knowledge organizations. Employees who understand how and why pay decisions are made stay longer, engage deeper, and advocate for their employer.

A unified compensation platform makes this scalable, centralizing ranges, tracking equity in real-time, and generating explainable reports for leadership and managers.

The result? A culture where pay discussions build trust instead of tension, positioning your company to attract and retain top talent in a transparency-first world.

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