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What compensation gap analysis is
Compensation gap analysis is a systematic review of pay differences between employees or groups of employees, with the aim of determining whether they are justified by objective criteria. When preparing for Directive (EU) 2023/970, this is one of the most practical tools because it shows where risks exist before questions arise from employees, candidates, or control authorities.
It is important that the analysis not be reduced to a simple comparison of average salaries. Its real value comes from comparing comparable roles, levels, and groups while taking into account factors such as experience, responsibilities, department, location, and type of compensation.
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Why this analysis is needed
Without analysis, organizations often learn about the problem too late — during internal dissatisfaction, a labor dispute, or when they need to explain why there is a pay difference between two similar positions. Gap analysis helps turn the topic into a manageable process.
It is also valuable for business because it shows whether the company is truly managing pay consistently or whether historically accumulated decisions have already led to distortions. This is especially important in the context of equal pay and work of equal value.
What data you need
The first step is data quality. A reliable analysis cannot be done if information is scattered across different files, if job titles are inconsistent, or if bonuses are not clearly described. Usually the following groups of data are needed: base salary, variable pay, job title, level, department, tenure with the company, overall professional experience, location, and employment status.
It is also a good idea to include hiring and promotion data, because they often explain differences that otherwise appear unjustified. For example, a higher starting salary may be the result of a specific market moment, but if the pattern repeats without criteria, differences accumulate.
How the comparison is done
First, comparable positions are grouped. Then compensation is compared within the groups, not only between departments. It is useful to look at medians, ranges, and dispersion, not just averages. The average often hides problems, especially when there are several highly paid employees who distort the result.
Next, explanatory factors are sought. If the better-paid employee has more responsibilities, broader scope, or specific competencies, the difference may be justified. If such factors are missing or not documented, there is a risk of an unexplained gap.
What is an "explainable" and "unexplainable" gap
An explainable gap is a difference that can be supported by clear, predefined, and consistently applied criteria. For example, greater managerial workload, higher qualifications, a specific market shortage, or a demonstrably stronger role in results.
An unexplainable gap is a difference that cannot be justified by such factors or for which there is not enough evidence. This is exactly where the analysis is especially useful, because it shows not only the size of the problem, but also what kind of solution is needed — correction, review of the criteria, or additional data collection.
Common mistakes in the analysis
One of the most common mistakes is mixing non-comparable roles. Another is looking only at base salary, without bonuses and additional payments. The third is drawing quick conclusions from insufficient data. Such an analysis must be methodical, otherwise it leads to wrong conclusions and unnecessary tension.
It is also not advisable to omit partial factors. For example, two employees may have the same job title, but one may work at a higher level of autonomy or take on additional responsibilities. This should be visible in the analysis.
Example of practical application
In a manufacturing company, it may be found that operators on the same line receive different base salaries. A check shows that some of the differences come from different tenure and participation in internal training, but another part is inherited from an old hiring model. In this case, the analysis does not just show a problem; it provides a basis for corrections and new rules for taking up a position.
In another organization, for example in customer services, the analysis may show that women are concentrated in lower ranges despite similar results and identical responsibilities. This does not automatically prove a violation, but it is a strong signal to review the criteria and promotion processes.
How to use the results
The results of gap analysis should lead to action. Usually this means three types of measures: pay adjustments where unjustified differences exist; review of job titles and levels; and updating policies for hiring, promotion, and bonuses. If the analysis remains only in a report, it has no practical value.
A good approach is to create a plan by priorities. First, the cases with the highest risk are reviewed — for example, significant differences within the same job group or a repeated pattern of different starting pay for similar profiles.
How to communicate internally
Communication is a sensitive issue. Employees need to understand that the analysis is not a punitive inspection, but a tool for fairness and consistency. Managers, in turn, need to know how to discuss the results without promising automatic corrections where a more detailed review is needed.
If communication is clear, the analysis can increase trust. If it is unclear, it can create more questions than answers.
What to include in your own process
- definition of comparable positions;
- sources and time period of the data;
- criteria for explainable differences;
- thresholds for flagging risk;
- responsible persons and deadlines;
- plan for corrective actions;
- mechanism for re-review.
How this analysis supports readiness for 2026
Regardless of the specific national transposition deadlines, organizations that start now will have an advantage. The analysis helps them identify problems early, prepare arguments, and establish better rules before the requirements become operationally mandatory.
It is also the best way to avoid improvisation at the last minute. Preparation under Directive 2023/970 should not be reactive; it should be based on data and clear processes.
What to do right now
Select one or two job groups and conduct a pilot analysis. Check whether the data is complete, which differences are explainable, and where there are unjustified deviations. Then determine which policies need to change. To build on the result, also review the related materials on the general framework of the directive and the structure of salaries and salary ranges.
Conclusion
Compensation gap analysis is one of the most useful tools for employers who want to prepare their business for pay transparency. It combines data, logic, and practical manageability. When done well, it shows not only where the risk is, but also how it can be addressed in a reasonable and defensible way.
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