The Lithuanian Free Market Institute (LFMI) warns that, after the recent tax reform, Lithuanian businesses are facing another major regulatory challenge — the implementation of the EU Pay Transparency Directive.
The directive aims to reduce unjustified gender pay gaps and ensure equal pay for work of equal value. However, LFMI cautions that, if implemented without sufficient preparation and flexibility, the new rules could impose a heavy administrative burden on companies and interfere with the way businesses reward performance, initiative, and value creation.
Lithuania’s Prime Minister Inga Ruginienė has supported postponing the entry into force of the new requirements, saying that employers should be given additional time to prepare. LFMI welcomes the recognition that businesses and institutions are not yet ready, but stresses that the broader risks of the directive must also be addressed.
“The EU Pay Transparency Directive creates a huge administrative burden. It marks the beginning of interference in the motivational mechanisms that operate in companies and institutions. These mechanisms are our main asset when it comes to increasing productivity,” said LFMI President Elena Leontjeva.
According to Leontjeva, pay decisions are not based solely on job titles. Employees in similar roles may create very different value through experience, initiative, responsibility, creativity, problem-solving, and results — factors that are not always easy to measure or standardize.
“Companies use a wide range of motivational tools, and there are differences between people whose job titles may be the same but who create value in very different ways. Some of this can be measured directly, while some is difficult to measure. Human motivation determines final productivity and, ultimately, whether a company survives,” Leontjeva said.
LFMI argues that an overly rigid interpretation of “equal value” work may weaken incentives and make companies less able to reward individual contribution. This is especially risky for small and medium-sized businesses, which may lack the legal, HR, and administrative capacity to comply with complex new reporting and justification requirements.
“This creates an atmosphere in which pay policy is treated as a matter for the state to regulate — as if everything can be made transparent and equalized. But the goal of companies is not to formally equalize people. It is to encourage creativity, initiative, motivation, and productivity,” Leontjeva noted.
Business representatives have also warned that the new rules could unintentionally push employers away from traditional employment relationships. Daiva Čibirienė, President of the Lithuanian Association of Accountants and Auditors, said that some employers may seek alternative contractual arrangements in order to avoid the risks and complexity of the new system.
LFMI stresses that Lithuania’s competitiveness depends on its ability to attract investment, retain talent, and allow companies to grow. At a time when businesses are already adapting to tax changes and rising costs, additional regulation must be implemented with great care.
“If we want Lithuanian companies to grow, create better jobs, and raise wages, we must protect motivation, flexibility, and the ability to reward value creation. Transparency must not turn into centralized pay regulation that weakens companies’ ability to compete,” LFMI said.