Objective Compensation Criteria – How to Build a Fair Pay System?

The Foundation of Pay Transparency

Pay transparency without objective criteria is just an illusion of fairness. Directive 2023/970 requires that pay differences be justified by objective, gender-neutral factors.

What Are Objective Criteria?

According to the directive, objective criteria are those that:

• Are not discriminatory – directly or indirectly
• Are gender-neutral – do not favor either gender
• Are measurable and verifiable – can be objectively assessed
• Are job-related – concern actual job requirements

Four Pillars of Job Evaluation

The directive indicates four main criteria for assessing work value:

1. Skills

Knowledge, competencies, and abilities required to perform the job:

Objective	Subjective (to avoid)
Required certifications	”Appropriate appearance”
Language proficiency (B2, C1 level)	“Good interpersonal skills”
Experience with technology X	”Fits the team”
Relevant degree	”Dynamic personality”

2. Effort

Physical, mental, and emotional effort required for the position:

Objective	Subjective
Shift work	”Demanding position”
Frequent business travel (%)	“Stressful job”
Working with difficult clients	”Challenging customers”
Overtime (monthly average)	“Time flexibility”

3. Responsibility

Scope of responsibility and impact of decisions on the organization:

Objective	Subjective
Budget under control (€)	“High responsibility”
Number of subordinates	”Important role”
Impact on company revenue (%)	“Key position”
Responsibility for client data	”Trusted position”

4. Working Conditions

Environment and conditions of work:

Objective	Subjective
Noise exposure (dB)	“Difficult conditions”
Contact with substances	”Dangerous work”
Working at height	”Demanding environment”
Remote work (%)	“Modern approach”

Job Evaluation Methodologies

Point Factor Method

Most popular and recommended by experts:

Step 1: Define evaluation factors

1. Education (0-100 pts)
2. Experience (0-100 pts)
3. Task complexity (0-150 pts)
4. Financial responsibility (0-100 pts)
5. People management (0-100 pts)
6. Client contact (0-50 pts)
7. Working conditions (0-50 pts)

Step 2: Evaluate each position

Position: Senior Developer
- Education: 70 pts (technical degree)
- Experience: 80 pts (5+ years)
- Complexity: 120 pts (high)
- Financial resp.: 40 pts (medium)
- Management: 20 pts (junior mentoring)
- Client contact: 30 pts (occasional)
- Conditions: 10 pts (office)
TOTAL: 370 pts

Step 3: Assign point ranges to salary bands

300-350 pts: €6,000 - €7,000
350-400 pts: €7,000 - €8,000
400-450 pts: €8,000 - €9,000

Paired Comparison Method

Simpler, for smaller organizations:

1. Compare each position with every other
2. Assess which is “worth more”
3. Build ranking based on results

Job Classification Method

Used in the public sector:

1. Define job classes/grades
2. Describe requirements for each class
3. Assign positions to classes

How to Avoid Gender Bias?

Pitfalls to Avoid

❌ Undervaluing “female” work

• Care, education, administration often paid less than “male” sectors
• Solution: Objective assessment of all factors, not tradition

❌ Overvaluing physical strength

• Points for physical work but not for emotional strain
• Solution: Equal weights for different types of effort

❌ Bonus for “availability”

• Favors people without caregiving responsibilities
• Solution: Evaluate results, not presence

❌ Informal promotion criteria

• “Visibility,” networking, business dinners
• Solution: Formal, documented career paths

Good Practices

✅ Evaluation team

• Gender-diverse
• Trained in bias awareness
• Consensus decisions

✅ Regular reviews

• Full system revision every 2-3 years
• Analysis of impact on pay gap
• Market adjustments

✅ Documentation

• Every decision justified in writing
• Archiving for audit purposes
• Accessible to employees

Implementation – Step by Step

Phase 1: Preparation (2-3 months)

1. Establish project team
2. Choose methodology
3. Define factors and weights
4. Train evaluators

Phase 2: Job Evaluation (3-6 months)

1. Collect job descriptions
2. Conduct evaluation
3. Validate results with managers
4. Build pay scale

Phase 3: Implementation (3-6 months)

1. Compare current salaries with new scale
2. Develop transition plan (red-circling, green-circling)
3. Employee communication
4. Implement changes

Phase 4: Maintenance (ongoing)

1. Regular reviews
2. Evaluation of new positions
3. Pay gap monitoring
4. Market adjustments

Supporting Tools

Job Evaluation Software

• Mercer IPE – international standard
• Korn Ferry Hay – popular point factor methodology
• Willis Towers Watson – global solution
• Local systems – adapted to regional markets

Market Data

• Salary reports – from consulting firms
• Statistics offices – average salary data
• Job portals – data from job postings

Summary

Objective compensation criteria are the foundation on which pay transparency is built. Without them:

• Salary ranges will be arbitrary
• Gap reports will be useless
• Audits will reveal problems

Investment in a professional job evaluation system pays off through:

• Legal compliance
• Lower turnover
• Higher motivation
• Better employer branding

This is not a cost – it’s an investment in a fair and effective organization.

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Thank you for reading our series of articles on EU Directive 2023/970. If you need support in implementing pay transparency, contact our experts.

Read Also

• AI governance in practice: how to build ethical and legally compliant AI systems
• Directive 2023/970 – A Guide to New Pay Equality Regulations
• Job Position Valuation: Methods, Process, and Benefits for Companies

Read also

• Pay Without Secrets – How to Discuss Compensation, Create Pay Ranges, and Motivate with Bonuses
• How to Choose an IT Training Company — 7 Decision Criteria
• Gender Pay Equality – Why Does the Pay Gap Still Exist?

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Frequently Asked Questions

When does Directive 2023/970 need to be implemented by EU member states?

EU member states must transpose Directive 2023/970 into national law by June 7, 2026. Companies should begin preparing now, as building a compliant job evaluation system and adjusting pay structures typically takes twelve to eighteen months.

What is the point factor method and why is it recommended?

The point factor method assigns numerical scores to jobs based on predefined criteria such as skills, effort, responsibility, and working conditions. It is the most widely recommended approach because it provides a transparent, objective, and legally defensible framework for comparing the relative value of different positions.

How can small companies implement objective compensation criteria without expensive consulting?

Small companies can start with simpler methods like paired comparison or basic job classification, using internal teams trained in bias awareness. Free resources from labor authorities and industry associations can guide the process, and the key is consistency and documentation rather than sophisticated software.

What should a company do if the new evaluation reveals existing pay gaps?

Companies should develop a transition plan that addresses underpaid positions through gradual salary adjustments over a defined timeline. For overpaid positions relative to the new scale, a red-circling approach freezes current pay while the scale catches up, avoiding sudden pay reductions while moving toward equity.