Most companies want to make fair decisions about pay. But unconscious bias, favouritism and hidden discrimination can easily get in the way. In this guide, we’ll show you how to set up your systems and processes so that every compensation decision is based on consistent, logical guidelines — and not intuition or subjective opinions.
Why structured compensation decisions matter in 2025
Without a solid compensation structure, pay decisions are often based on little more than guesswork — and that’s no longer acceptable in 2025.
First, employees are less and less likely to accept pay decisions they see as arbitrary — so it could lead to problems with morale, engagement and retention. Second, the EU Pay Transparency Directive is about to come into effect across Europe.
This will introduce a number of changes to the way employers handle compensation, but here’s the TL;DR: Companies will need to be prepared to justify every pay decision they make.
The directive requires employers to show that each pay decision has been made according to fair, objective, and gender neutral criteria. That means well-designed systems and structured processes are key.
6 steps to fair compensation decisions
To comply with the EU directive, companies need to apply consistent criteria, keep clear documentation, and align timing across all pay decisions. This calls for a strong, repeatable framework that helps reduce bias and increase accountability.
With the right systems in place, you can make sure your compensation decisions are fair and objective — and not based on manager intuition alone. Read on for six ways to increase pay fairness in your organisation.
1. Build a coherent job architecture
A clear job architecture is the foundation for fair compensation. By defining roles consistently, HR teams and company leaders can understand who is operating at the same level — even across different departments.
This enables employers to introduce pay structures like salary bands, which ensure everyone is paid according to the work they do. Because they provide a consistent framework for pay decisions, salary bands can also drive pay equity by reducing the impact of bias and discrimination.
2. Implement a structured review process
Having a structured process for compensation reviews ensures that pay decisions are made according to fair, predetermined criteria. In most companies, this process happens once a year. Those in highly competitive spaces or fast-moving industries may conduct biannual reviews.
The review process should encompass salary benchmarking, a review of salary bands and an internal equity assessment. Many organisations also conduct performance evaluations as part of the same process, with employees receiving either a raise or a bonus for top performance.
Whatever criteria you choose to account for during the compensation review process, consistency is key. A repeatable, well-defined process is essential for fair and effective compensation decisions.
3. Deliver thorough training to managers
Managers play a crucial role in the compensation review process. But, giving them full discretion over pay increases can lead to inconsistencies and perceptions of unfairness. Instead, HR should provide managers with the tools they need to make fair decisions based on predefined guidelines.
First, managers should receive thorough training on the organisation’s compensation philosophy and how it should be applied. This enables them to make stronger, data-driven decisions. It also equips them with the context they need to have constructive conversations with employees about pay.
Some organisations take this a step further by giving managers HR-generated salary increase recommendations for each employee, which they can choose to accept or deviate from. In this case, it’s important to establish thorough documentation for accountability and transparency.
4. Find a reliable source of market benchmarking data
Benchmarking your salaries (or salary bands) against the market is essential if you want to stay fair and competitive. But employers sometimes struggle to find reliable sources of benchmarking data.
The traditional approach is to purchase a salary survey from a big consulting firm like Radford or Mercer — but these are expensive and complex to use. They’re also typically geared towards large enterprises, which means they may be less useful for smaller organisations.
Today, compensation tools like Figures offer a more accessible alternative, especially for smaller or fast-growing businesses. With benchmarking data built in and sourced directly from client HRIS systems, these tools provide accurate, near real-time insights. This makes it easier to make fair and informed decisions about pay.
5. Set criteria and parameters for off-cycle adjustments
Even with a solid compensation review process in place, there are times when you’ll need to make adjustments outside of the normal cycle. The problem arises when these off-cycle changes happen in an ad-hoc, unstructured way — which can undermine the fairness and consistency you’ve worked hard to build.
That’s why it’s essential to define clear criteria for off-cycle adjustments. You should set out details like when these adjustments are permitted, what metrics will be used to define eligibility and who will have to approve them. You may also want to set a limit on the number of off-cycle adjustments that can be made each year.
6. Document everything
Accountability and transparency start with good documentation. To ensure fairness, every pay decision should be recorded along with the reasoning behind it, any HR recommendations provided and why they were overruled. Ideally, this should all live in a central, accessible system.
Having a clear record is crucial in the context of upcoming pay transparency legislation since it creates a reliable audit trail. Future HR teams and managers will also be able to refer back to these records for context. This will help them avoid confusion and understand the justification behind historical pay decisions.
The compensation review process: a brief overview
There’s no one right way to run a compensation review — the process looks different in every organisation. That said, they do usually involve some of the same key steps. Here’s an overview of the typical process to help you understand what it might look like in your organisation:
- Understand your budget: The budget you have available for promotions and salary increases is usually defined by the finance team.
- Benchmark and correct salary bands: This ensures compensation packages are in line with the market and your desired positioning.
- Review internal equity: This means ensuring employees are paid the same for the same or similar work — and making adjustments if needed.
- Apply performance increases: Depending on your policy, employees may receive an additional increase or a bonus for top performance.
- Agree on increases: Increases are typically suggested by HR, approved or overruled by managers and then finalised in a calibration meeting.
- Communicate to employees: After the review is over, managers need to communicate the results to their team.
- Update documentation and payroll: Rolling out salary increases is the final step.
Selecting acceptable pay criteria in 2025
The EU Pay Transparency Directive requires companies to establish objective, gender-neutral criteria for pay decisions. These should apply both at the hiring/offer stage and during the compensation review process.
Businesses are essentially free to take into account any criteria they choose, as long as they are objective and fair. For example, many organisations consider the following criteria when making pay decisions:
- Performance: Rewarding employees with raises or bonuses for strong performance is known as the pay-for-performance model. It’s a perfectly legitimate approach as long as you have fair, consistent systems for measuring performance.
- Seniority: Some organisations reward employee loyalty with pay increases for every year of service, while others give bonuses when team members hit key milestones. Again, this is a reasonable system as long as it’s applied consistently.
- Qualifications: Taking into account employee qualifications when setting pay is also an option. Companies that do this should have a strict framework outlining the types of qualifications they recognise and how they’re rewarded.
- Market data: Benchmarking against the market is a key part of the compensation review process for many organisations. It’s also reasonable to have a different positioning for different groups of employees — for example, paying above market for hard-to-fill tech roles.
- Inflation: Some companies take inflation into account when defining pay increases, either by giving employees a set percentage raise or a one-off bonus. Some may offer this to all employees, while others only provide it to those on the lower end of the pay scale.
How Figures helps businesses make fairer compensation decisions
Figures is an all-in-one compensation management platform that can help you to make stronger, fairer compensation decisions in a few key ways:
- Market benchmarking: You can use Figures to benchmark salaries against real-time, accurate market data, helping you to ensure your compensation packages are competitive and fair.
- Salary bands: Figures also lets you build a robust salary band structure for your entire organisation. This will act as a framework for fair, consistent compensation decisions without the influence of bias or discrimination.
- Compensation reviews: Using Figures to run compensation reviews makes the process easier, smoother and fairer. Relevant stakeholders will be automatically prompted for their input, which they can provide in a secure, dedicated environment. Figures also retains a fully auditable record of every pay decision, building in accountability and transparency.
Want to learn more about how Figures can help you deliver fair, competitive pay packages? Sign up for a free demo to see our full product suite in action.
