Case Study

Compensation: Salary, Equity, and Benchmarking

A software business with around 250 FTE lacked a structured compensation approach, leading to inconsistent salary decisions and frustration among leadership team, managers, and employees. During a four-month project with subsequent refinements, the client received a salary band program to manage salaries and equity, a benchmarking solution, and transparent decision-making processes.

Challenge

Managers responsible for recruiting new talents lacked guidance on compensation, leading to case-by-case salary negotiations.
Furthermore, the need for a structured compensation philosophy led to inconsistent salary decisions across departments.
High demand for skilled talent resulted in overpayment and compensation inconsistencies across the firm.
Regulatory pressure, such as the 'EU Pay Transparency Directive' required justification for all compensation decisions.

Strategy

1. Defining a compensation philosophy

Workshops with company leadership on key compensation principles gathered structured answers to key concepts:
- positioning in the market,
- geographical differences,
- commissions, and
- value of equity vs. salary.

2. Establishing salary bands:

External benchmarking data and internal compensation insights helped to define bands for salary and equity grants for each job family and job level.
These bands needed a structured approval process, which was defined alongside all stakeholders (exemplarily: HR → Recruiting team → Finance team → Leadership team for sign-off).
A clear messaging strategy for compensation discussions with candidates and employees was prepared and launched to managers.

3. Implementing a benchmarking tool:

After selecting and purchasing of a tool matching all requirements, all roles were mapped to benchmarks by contribution type and job level.
A gap analysis helped to identify outliers and advise salary reviews in the future, marking off regulatory requirements.
Last but not least, the benchmarking tool was integrated with the company's HRIS.

Results

Leadership defined and communicated key compensation beliefs, ensuring alignment across HR, recruiting, and managers. Guidelines ensured consistency in future decision-making.
Each employee was mapped to their respective salary band, and discrepancies for correcting pay and equity were identified to resolve in the following performance review cycle.
Negotiations around compensation could structurally account for employee performance and market trends.
Setting up an update process for reassessing compensation helped to act quickly on the following KPIs:
- High involuntary turnover due to compensation concerns.
- Declining offer acceptance rates.

Impact

The implementation of a structured salary band and benchmarking framework improved pay consistency, ensured compliance with the EU Pay Transparency Directive, and offered to align compensation with employee performance and market benchmarks. It enhanced fairness, streamlined decision-making, and provided a scalable compensation model for future headcount growth.

Everyone seeks transparency & clear communication – Structured communication on compensation helps managers, employees and candidates to understand the value of their pay, fostering trust and employee engagement.

Lessons learned

Executive buy-in and alignment is essential – A clear compensation philosophy must align with company values and leadership priorities to ensure consistency and effectiveness. Otherwise, each department ends up with their exceptions again.

Salaries must adapt to the market – Regular reviews and benchmarking ensure salary structures remain competitive, equitable, and responsive to market trends – no more reclining employees due to overpayment in their role.

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