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Why is fair remuneration so crucial for companies?

Added to this are the topics of "pay equity" and the "gender pay gap," which have long been monitored in the EU and can, in many cases, lead to reputational and financial consequences. Furthermore, larger employers face growing demands for remuneration transparency and pressure from trade unions or employee representatives.

Companies without clearly defined internal wage policies unnecessarily expose themselves to the risk of employee disputes, inspections, and claims for back pay. The Prague-based legal team at ARROWS has long specialised in setting up internal wage systems and helps companies protect themselves from these risks in advance.

What do "fair" and "non-discriminatory" remuneration actually mean?

Fair remuneration is not the same as "equal pay for all." It is about ensuring that differences in pay have rational, objective, and justifiable reasons. Legally, we work with concepts such as:

• "equal treatment" – a ban on discrimination based on gender, age, race, nationality, religion, trade union membership, etc.

• "comparable work" or "work of equal value" – which involves comparing requirements for qualifications, responsibility, complexity, physical and mental demands, and working conditions.

Differences in remuneration can be legitimate if they are based, for example, on seniority, performance, team responsibility, specialisation, or the labour market. A problem arises when these differences are not documented, are not systematic, or appear discriminatory at first glance.

If an employee were to claim unequal pay, the employer must be able to convincingly demonstrate why the remuneration is different and what objective criteria were used. 

What is the legal framework – and why does it pay to be one step ahead?

The basic legal framework for remuneration in the Czech Republic is based on the Labour Code and the Anti-Discrimination Act. In addition, European law also comes into play, particularly the principle of equal pay for men and women and EU directives aimed at greater wage transparency.

In practice, this means:

• a ban on discrimination in remuneration (both direct and indirect),

• the obligation of equal treatment for employees in similar positions,

• potential obligations related to providing information about remuneration criteria,

• the risks of litigation over unequal pay, including back pay and compensation for non-pecuniary damage.

The legal regulation of remuneration is gradually tightening, and the pressure for wage transparency will grow – especially for larger employers and international groups. The legal team at ARROWS prepares companies for new obligations in a timely manner and helps adjust wage systems to be sustainable in the long term, both in the Czech Republic and abroad.

How to start: a wage audit and remuneration mapping in the company

The first step towards "fair" remuneration is usually not writing a directive, but a thorough analysis of the current situation – a so-called wage audit. This typically includes:

• an overview of employees by job position, team, and seniority,

• a comparison of wages or salaries for comparable positions,

• the identification of significant deviations or "anomalies,"

• linking remuneration to performance, experience, responsibility, and other criteria.

It can also include an anonymised analysis of the gender pay gap – the differences in remuneration between men and women in various categories. From a legal perspective, this is important evidence for a potential defence in future disputes or negotiations with trade unions.

Without a proper wage audit, it is very difficult to set up internal rules that reflect reality and would stand up in a potential dispute.

Wage audit and current situation

How to set up internal wage rules and regulations?

After the audit, it is time to formulate clear internal rules. These can take the form of a wage regulation, an internal directive, or part of an employment or collective agreement. It is important that they are:

• understandable for management, HR, and employees,

• sufficiently flexible (for example, for individual bonuses),

• legally enforceable and defensible before an inspectorate or a court.

In practice, it is advisable to:

• define wage grades or "job grades" for individual positions,

• clearly describe what influences the amount of the fixed wage (experience, seniority, responsibility),

• determine the rules for the variable component of the wage and bonuses,

• manage individual exceptions (for example, for key employees) so that they do not disrupt the basic logic of the system.

The specific wording in wage regulations is crucial – a slightly different sentence can have a major impact in a dispute with an employee or a labour inspection. The Prague-based legal team at ARROWS regularly prepares and revises wage regulations for companies, including harmonising them with employment and collective agreements.

What role do job descriptions and evaluation criteria play?

Without high-quality job descriptions, it is difficult to defend fair remuneration. A job description is the basis for assessing whether the work is comparable and whether the wage is appropriate for the complexity, responsibility, and demands of the job. In legal terms, this is referred to as the "value of work."

It is important that:

• job descriptions are up-to-date, not just formal documents "for the file,"

• they clearly show how positions differ (e.g., level of responsibility, decision-making, team leadership),

• they are linked to wage grades or ranges.

In addition, performance evaluation criteria play a crucial role. If part of the wage is tied to performance or results, the criteria need to be:

• known in advance and understandable,

• measurable and verifiable,

• non-discriminatory and reasonable.

Without high-quality job descriptions and evaluation criteria, a company is in a significantly weaker position in a dispute with an employee. ARROWS helps clients set up job descriptions and evaluation systems so that they "fit" the reality of operations as well as legal requirements; if you are planning to revise positions, please contact our firm.

Job descriptions and evaluation criteria

How to align fixed wages, bonuses, and benefits?

Fair remuneration is not just about the basic wage. The overall "total reward" package includes:

• fixed wage,

• variable component (bonuses, rewards, commissions),

• benefits in kind (company car, housing),

• benefits (extra vacation, meal vouchers, training, health packages).

Legally, it can matter significantly whether a benefit is a contractual entitlement (e.g., in an employment contract or directive) or merely a voluntary provision by the employer. Incorrect wording can lead to a benefit that the company intended to be voluntary becoming a legally enforceable entitlement.

The remuneration structure must be clearly described and sustainable in the long term – otherwise, the company can easily fall into the trap of excessive commitments or unclear employee entitlements.

How to prevent discrimination and disputes over unequal pay?

Experience shows that disputes over unequal pay do not arise overnight. They usually "simmer beneath the surface" for a long time and come to light when an employee is leaving, has a conflict with a supervisor, or when information about colleagues' wages spreads.

It is essential to:

• have clear, documented criteria for differences in remuneration,

• continuously review whether remuneration in practice deviates from the rules,

• appropriately set up internal communication about remuneration to avoid misunderstandings,

• respond to employee complaints or questions in a timely manner.

From a legal standpoint, it is important to realise that in a dispute over discrimination or unequal treatment, part of the burden of proof lies with the employer – they must prove that the different remuneration has a legitimate reason and is not discriminatory. This is very difficult without prior documentation.

A properly set up remuneration system significantly reduces the risk of discrimination lawsuits and conflicts with key employees. The legal team at ARROWS regularly represents companies in labour law disputes and negotiations with state authorities and also helps prevent disputes by appropriately setting up legal documents – if you want to avoid such disputes, contact our experts.

Discrimination and litigation

How to communicate the topic of remuneration within the company?

Even a perfectly designed wage system can fail if it is poorly communicated. Transparency does not mean publishing specific wages, but clearly explaining:

• what the criteria are for being placed in wage bands,

• what an employee can do to increase their wage (performance, development, role change),

• how bonuses and the variable component work,

• how often wage reviews are conducted.

In larger companies, HR departments and line managers often play a significant role. They must know how to work with the established system – which is why it pays to focus on their training as well.

A high-quality legal setup for remuneration should be supplemented with practical training for management and HR so they know how to use and explain the rules in practice.

International groups, expansion, and different regimes in various countries

For international groups and companies with branches in different countries, the topic of fair remuneration is even more complex. Different legal regulations, varying wage levels in different markets, collective agreements, local customs, and pressure for intra-group fairness all come into play.

Issues that are addressed include, for example:

• differences in remuneration for similar positions in different countries,

• harmonising group policies with local laws,

• requirements of local trade unions or employee councils,

• the effects of transferring employees between branches.

Without experience in local regulation and without coordination between different legal systems, international groups face an increased risk of disputes and reputational problems in multiple countries simultaneously. ARROWS also provides legal services abroad thanks to its long-established ARROWS International network and handles cases with an international element daily; if you are dealing with setting up remuneration in an international group, get in touch with our experts.

Why you shouldn't tackle this without expert support

The legal regulation of remuneration and internal company practices are more complex than they may seem at first glance. Simple decisions like "we'll just give a raise to this team" or "we'll offer a higher starting salary for new positions" can have unexpected legal consequences over time – especially if they contradict what is in your wage regulations or employment contracts.

Individual steps that seem simple (changing bonuses, introducing a new benefit, reacting to inflation) have hidden procedural details, links to other regulations, collective agreements, and tax and accounting implications. A layperson or an internal team without specialisation often does not see the whole picture, and the risks only become apparent during an inspection or a dispute.

The law firm ARROWS deals with setting up remuneration and internal wage rules daily, which allows it to significantly save clients' time, minimise the risk of errors, and ensure that the system will be sustainable in the long term. ARROWS is insured for damages up to CZK 350,000,000 and regularly collaborates with in-house corporate lawyers to resolve complex and specific matters.

ARROWS' experience from long-term cooperation with more than 150 joint-stock companies, 250 limited liability companies, and dozens of other entities, including municipalities and regions, shows that a well-designed wage system brings not only legal certainty but also a more stable team and a better position in the labour market. If you do not want to risk mistakes, fines, or costly litigation when setting up fair remuneration, you can safely entrust the entire agenda to the law firm ARROWS.