Pay Transparency: Why “It Was a Managerial Decision” Will No Longer Defend a Salary Increase

20.08.2026

Matylda is the HR Director at a large tech company.

This year, the company’s executive board allocated 5% of the total payroll budget to merit increases. Every manager received a specific pool of money and could distribute it among their team members entirely at their discretion.

Matylda saw nothing unusual in this approach. Managers know their people best—they know who stays engaged, who delivers results, and who is particularly critical to the firm.

One of these managers was Roman, who quickly decided that within his IT Department, the largest raise would go to Jacek—an ambitious Software Engineer with strong growth aspirations.

“Why did Jacek get an 8% raise while I only got 3%?” asked Agnieszka, a member of Roman’s team, a few weeks later.

Roman didn’t think twice.

“Jacek is just extremely engaged. He does a lot for us.”

Agnieszka was not convinced.

“But my performance was strong too. Last year, I took on additional responsibilities and received the highest performance rating. So why did he get a bigger raise?”

Roman shrugged.

“It was a managerial decision. I had a set budget and had to divide it somehow.”

Pay Transparency: How Was It Done in the Past?

Until recently, Roman’s answer would have been the end of the conversation. Agnieszka might have felt dissatisfied, spoken with HR, or, worst-case scenario, started looking for a new job. For years, decisions regarding pay raises remained largely within the realm of employer discretion. An employee could always ask why they were earning a certain amount or why someone else was making more, and the company could offer a more or less vague response:

• “That was the board’s decision.”

• “You didn’t negotiate well enough.”

• “Jacek had a better offer from the market, and we had to match it to keep him.”

Unless the employee decided to take legal action, the consequences of such answers were usually limited to employee dissatisfaction. Only when a formal pay discrimination dispute arose did the employer have to justify their reasoning.

Under new pay transparency regulations, however, this approach becomes a significant risk. A pay increase will no longer be an arbitrary managerial call, but a decision the organization must be able to explain, justify, and—if necessary—defend in court.

New Pay Transparency Rules Place Employers in an Uncomfortable Position

New pay transparency rules introduce obligations for employers and rights for employees. Once the new legislation takes effect, employees will have concrete tools to verify whether their pay is fair.

To comply, employers must establish several critical foundations:

1. Assess the Value of Roles: Companies must clearly define which roles perform work of equal value based on objective factors such as qualifications, experience, responsibility, level of autonomy, and required competencies.

2. Define Pay Growth Drivers: Companies must outline what drives salary levels, raises, and promotions so that every employee understands why they earn what they do.

3. Ensure Transparency of Rules: Employees will have the right to request information regarding their salary level and pay growth criteria. They will also be able to see how their pay compares to others performing work of equal value—broken down by gender.

This is the core impact of the new regulations.

When Agnieszka asks again, “Why did I get a lower raise than Jacek?”, Roman’s old response will no longer suffice. The company must provide a substantive answer based on objective criteria that led to the manager’s decision. This answer must be carefully considered—it needs to stand up in court if necessary, without causing reputational damage if it reaches other employees through the grapevine.

Raises Will No Longer Be Arbitrary Decisions

These rules do not mean that all employees in the same position must earn the exact same salary. Differentiation remains entirely permissible. The risk arises when a company cannot explain the specific reason behind a pay gap.

To mitigate this risk, organizations should address several challenges proactively:

1. Establish Objective Criteria for Raises

Criteria must be gender-neutral and verifiable. Examples include:

• Achieving specific, measurable KPIs

• Reaching individual performance goals

• Acquiring additional job-relevant qualifications

• Taking on a broader scope of responsibility

• Assuming additional duties

• Shifts in working conditions that objectively alter responsibilities (e.g., required business travel)

What is difficult to defend? Relying on subjective statements such as “he is very engaged,” “he is great to work with,” or “he did a lot for us” without defining what those phrases mean in practice.

2. Document Pay Decisions

Documentation should allow the firm to explain why Agnieszka earns less than Jacek—even years after the raise was granted and long after Roman has “pursued opportunities outside the organization by mutual agreement.”

Document not just the amount of the raise, but also:

• The applied criteria

• The employee’s assessment against those criteria

• Rationale for any departures from standard guidelines

This is vital for non-standard decisions. It is not about writing multi-page justifications for every pay adjustment, but about ensuring the firm retains record of who made the decision and why. If a claim goes to court, the burden of proof rests on the employer to show the pay gap is non-discriminatory.

3. Train Managers

Managers will need new competencies. They are the ones who will hear “Why does X make more than me?” first.

They must understand the organization’s pay criteria, know how to apply them, and recognize which arguments to avoid in employee discussions. Training should focus on practical scenarios and real-life compensation decisions, as individual manager choices directly affect the organization’s legal risk.

Key Takeaways

• Equal Pay vs. Equal Work: Pay differentiation remains permissible, provided it is backed by objective, non-discriminatory justification.

• End of Discretionary Raises: Organizations must define clear criteria for salary growth and apply them consistently.

• Verifiable Standards: Rely on measurable metrics such as KPIs, goal achievement, additional qualifications, or expanded responsibilities.

• Clarify Subjective Claims: Vague praise like “highly engaged” must be translated into concrete facts to justify pay gaps.

• Document Decisions: Keep a clear record of the rationale behind compensation adjustments, especially for non-standard raises.

• Up-skill Managers: Train leadership to navigate pay conversations using objective criteria and compliant rationale.