New EU directive encourages employers to hold more systematic salary discussions

16.12.2025

Aet Purk, Figure Baltic Advisory senior consultant

Figure Baltic Advisory

Next year, a new directive on salary transparency (No. 2023/970) will come into force in the European Union, with the aim of reducing and preventing the gender pay gap and strengthening employees' rights to information about their salary level and how it is determined. 

Although many employers associate the directive primarily with tedious reporting obligations and an increasing administrative burden, it also encourages employers to make their wage policies more systematic and transparent, and thus more motivating for employees. One very practical tool in this process, which also offers opportunities to promote employee-centered management practices, is the regular salary review.

What is a salary review?

A salary review is a structured one-to-one conversation between a manager and an employee to give the employee a clear overview of their salary, how it is determined, and opportunities for development. It is not a salary negotiation and is not necessarily related to a salary increase. 

The focus of a salary review is on transparency and communication – the employee is explained why their salary is what it is, what criteria will influence salary changes in the future, and if a salary increase cannot be offered, why not.

Why are salary discussions important right now?

Firstly, to prepare for the expectations arising from the EU directive. The Pay Transparency Directive introduces specific requirements for employers, for example:

• Employees will have the right to receive information about their average salary and that of their colleagues doing the same or similar work, broken down by gender.
• Employers must explain the structure of their salary systems and the criteria for salary increases.
• Employers with more than 100 employees must compile and publish regular pay gap reports.

Regular pay reviews are one of the most effective ways to meet these requirements in an employee-friendly and low-administration manner. Clear and documented discussions can prevent future disputes and increase employee trust in the organization.

Secondly, employee expectations for transparency are growing. The new young generation of employees expects transparency and honest communication from their employer. Even the topic of salary is no longer a taboo. If an organization does not talk openly about salaries, employees will look for answers elsewhere – for example, in competitors' job advertisements or using the vast opportunities of the internet. 

Salary review or a development talk?

Though similar, these are not one and the same. They are conversations with different purposes and content, which are, of course, closely related: "how is the work, so is the pay." Employees logically see the connection and oftentimes expect to discuss salary at the end of a development conversation.

The situation where there are many people doing similar work and salary changes (or not changing it) apply to all employees in the same position in a uniform manner speaks in favor of combining these two conversations. This is a work arrangement where an employee's absence from the work process significantly affects the workflow and makes it difficult to organize. 

In other cases, however, we recommend keeping the two conversations separate: first, the development talk with open feedback and development plans, followed by a separate salary conversation.

There are two main reasons for keeping these conversations separate. First, managers often want to focus on development during the development conversation. To do this, it is a good idea to relieve the employee of the pressure to "show their best" in order to get a raise. Second, the manager is responsible for the entire team and budget as a whole, so decisions about the entire team must be made before they begin talking to each employee.

In the end, any organization can choose either approach, but it is important that all managers apply the same practice. Otherwise, different management practices may lead to mistrust of managers who do not conduct independent salary discussions.

How to implement salary discussions?

If salary discussions are not yet systematically used in the organization, the first step could be to do the following:

• Determine how often the discussions should take place – once a year, once every six months? When? How does this relate to the overall budget process?
• Create a uniform structure or form that helps managers address all important topics.
• Create support materials for managers, such as a visual representation of the salary range for each position.
• Train managers to address salary issues with confidence and empathy.
• Explain openly to employees why the conversations are taking place and what they can expect.
• Collect employee feedback on compensation in general, as well as on the perceived fairness of compensation and the clarity of compensation principles.

Keep the structure of the conversation short and specific. A good salary conversation is planned and based on a specific framework that could include the following:

• Current salary: base salary and bonuses. Don't forget employer benefits!
• Reasons: why is the salary what it is (results, market average, complexity of work).
• Conditions for salary changes: when is the next possible increase, what goals or criteria influence it.
• Organizational possibilities: honest overview of budgetary constraints or development plans.

One of the most common reasons managers avoid salary discussions is the fear that employees will inevitably expect a raise. In fact, many employees simply value honesty - if they are given an explanation as to why their salary will not change and under what conditions they can expect progress, this helps to maintain motivation and loyalty.

Salary discussions are not just a bureaucratic formality, but an important management tool that helps increase the transparency and credibility of the organization and employee satisfaction. The Salary Transparency Directive, which will come into force in 2026, will raise its importance to a new level. Now is the best time to implement systematic salary reviews – this will allow you to establish a working practice before it becomes a regulatory requirement.

Transparency does not always mean a pay rise, but it creates a strong foundation for trust, and trust is the foundation of a successful team.