Join Petra Skoglund (Senior HR Strategist at People by Cederfeldt) for a live conversation for reward and HR leaders at Nordic companies on workforce planning, board alignment, and building a fair comp strategy when budgets aren't growing.

Budgets are tighter. Headcount decisions are harder. And the pressure to stay competitive on pay, without just spending more is real.

This webinar is for reward and HR leaders at Nordic companies navigating exactly this. We're bringing in Petra Skoglund (Senior HR Strategist at People by Cederfeldt) who spent last year working with 30+ clients across Sweden, the Nordics, and Europe on comp strategy, workforce planning, and getting leadership teams aligned on reward.

Connecting workforce planning to comp strategy in a way that holds up with the business

Defining what fair looks like during downsizing and restructuring

Aligning CFOs and HR and making the case for comp decisions at the top table

Rewarding fairly when pay increases aren't on the table

Save your spot here

Comp strategy for Nordic leaders

Pay equity means equal pay for work of equal value. This guide covers how to run a rigorous pay equity analysis step by step, and how to close the gaps you find.

Pay equity has gone from a background concern to something HR and Reward leaders are being pushed on from every direction at once.

Legislation is coming whether you're ready or not, with the EU Pay Transparency Directive introducing mandatory gender pay gap reporting and a 5% threshold that most European tech companies will need to interrogate closely.

Employees are asking questions – and that same legislation will give them the right to demand answers – and leadership wants to know where the company stands before reporting obligations arrive. 

It’s also one of the toughest areas of Rewards to work on. 

One-off fixes don’t solve it. It takes deep analysis to find the gaps, understanding of where they come from, and building the processes that stop them increasing over time.

This guide covers everything People and Reward Leaders need to know: what pay equity actually means, why it matters for the business, how to run a rigorous pay equity analysis, how to close the gaps you find, and what tools can help.

Pay equity is the principle that employees should be compensated fairly for their work, regardless of gender, ethnicity, age, disability, or any other protected characteristic. 

It guarantees equal pay for equal work or work of equal value.

This is important because, in practice, that principle is widely unmet. Compensation decisions are shaped by bias – in hiring, in performance ratings, in how different roles are valued and who they’re accessible to – which means we’re left with pay gaps based on inequity.

The gender pay gap across Europe stands at 23% unadjusted and 2.4% adjusted (Ravio Compensation Trends report 2026). 

The raw earnings difference (unadjusted) is largely driven by representation, not by unequal pay for equal work. But a 2.4% adjusted gap means that women doing equivalent work to men still earn less.

Pay equity, pay equality, and pay parity: what's the difference?

These three terms are often used interchangeably, but they're not quite the same thing – so let’s be clear on how they’ll be used in the rest of this article.

Pay parity means paying employees the same amount for the same job. It's the most literal interpretation of equal pay – two people in the same role, at the same level, receiving the same salary, regardless of any differences in gender, race, or other protected characteristics

Pay equality is the same as pay parity – two employees who perform the same role should be paid equally, allowing for no discrimination based on gender, race, or other protected characteristics.

Pay equity takes it a step further, meaning equal pay for equal work or work of equal value – not just employees performing the same role, but evaluating the relative value of all job positions and ensuring that different roles of equivalent value are compensated fairly relative to one another. This is a more demanding standard, and it's the concept at the heart of much pay equity legislation – like the EU Pay Transparency Directive for European companies.

Pay equity has always been the right thing to do. But today there are also a breadth of business consequences when it's not managed well – across retention, performance, talent attraction, and legal compliance:

Legal compliance. Pay equity legislation is accelerating across Europe and beyond. The EU Pay Transparency Directive introduces mandatory gender pay gap reporting, employees' right to pay information, and the requirement to conduct a joint pay assessment for any unexplained gap above 5% within a category of workers doing equal work or work of equal value. Companies that fail to comply will see fines and penalties.

Business performance. Diverse organisations perform better, and pay equity is foundational to building and retaining that diversity. Research by McKinsey shows that diverse companies are now more likely than ever to outperform less diverse peers on profitability. In fact, gender-diverse teams on the executive level are 25% more likely to have above-average profitability. Companies in the top quartile with ethnic- and culturally-diverse teams also outperform those in the fourth quartile by 36%. 

Talent attraction. An Edelman study found that 60% of job candidates choose employers based on alignment with their personal values – and an organisation's approach to pay equity is one of the most visible signals of those values.

Retention and engagement. Perceived pay fairness has a direct effect on whether employees stay too. Research by Gartner found that employees who perceive their pay as inequitable have a 15% lower intent to stay than those who don't – and for those who do stay, engagement is down by 13%. Pay equity isn't just an ethical question, it's a retention lever.

A pay equity analysis is a systematic review of your employee compensation data to determine whether employees are being paid fairly across protected groups. 

Running one rigorously means following a clear process and being honest about what you find.

As Isha Smith, Global Head of Rewards at Soundcloud, puts it: "Introspection is crucial when it comes to pay equity. If you aren't able to look inwards and really dig into why pay discrepancies exist within your company's structure, systemic biases and pay equity issues may never come to light."

Here’s the 7 key steps involved in conducting a pay equity analysis:

Before pulling any data, decide what the analysis is going to cover.

Which protected characteristics? Gender is the most common starting point, and the focus of most legislative requirements. But, a best practice analysis examines all relevant protected characteristics: ethnicity, age, disability status, etc. Pay disparities can exist across any of these dimensions, and looking at gender alone can miss significant issues.

Which pay components? Base salary is the minimum, a complete analysis also covers bonus (actual paid, not target), equity, and any benefits with a monetary value – and this total rewards analysis is what’s required for reporting under EUPTD. 

Which employee population? Typically all employees, but you may choose to prioritise a particular region or function first, especially if you have reason to believe issues are concentrated there.

💡 Which employee groups have the highest risk of pay equity issues?

Ravio's analysis of gender pay gaps across European tech identifies three risk factors that  are most likely to produce adjusted gaps above 5%:

Function: Engineering (7.4% adjusted gap) and Data (5.5%) are the highest-risk job families, driven by male-dominated workforces where individual compensation decisions have an outsized effect on the overall gap.

Seniority: Management levels M2 (6.5%), M3 (6.9%), and M4 (8.5%) all exceed the 5% threshold – with fewer women at these levels amplifying the impact of each individual pay decision.

Location: Several developing tech markets also exceed 5% after adjusting for role and level – including Greece (7.6%), Lithuania (7.0%), and Poland (6.2%), perhaps as companies in emerging markets are less likely to have structures in place for consistent pay decisions.

And then there’s the intersection – when function and seniority combine, we see gaps become significantly more pronounced. M4 Data shows a 23.1% adjusted gap; M4 Engineering 12.3%.

See the full analysis of which employee groups are most at risk →

A pay equity analysis is only as good as the data underpinning it. 

You'll need employee compensation data (base salary, actual bonus paid, equity grant value, total compensation) alongside their job level, job function, location, tenure, performance rating (if applicable), employment type, and protected characteristic identifiers.

Most of this can be extracted from your HRIS and payroll systems – or your compensation system if you use a tool like Ravio.

Clean and validate the dataset before you start analysing – check for missing values, inconsistent job titles, and level mismatches between systems. Missing or bad data can distort the entire analysis, so this preparation step is often where the most time goes.

Step 3: Determine the relative value of each role

Before you can compare pay fairly, you need a consistent view of the relative value of every role in the business.

This is where job evaluation comes into play – a structured methodology (like the point factor method or job ranking) that assesses each role against objective criteria such as skills, effort, responsibility, and working conditions, producing a comparable score or ranking across the entire organisation.

The output of that process is your comparable groups: sets of roles that score equivalently and therefore represent work of equal value. 

These groups are what make the pay gap calculation in the next step meaningful – rather than comparing pay across the whole organisation or within arbitrary function boundaries, you're able to compare pay between employees whose work has been assessed as equivalent. 

Any gap that exists within those groups can't be explained away by differences in role or seniority, which means it needs a legitimate justification or it needs to be fixed

For EUPTD compliance specifically, job evaluation is the mechanism for defining your "categories of workers performing equal work or work of equal value" – the groups within which the Directive requires you to report your gender pay gap. 

With your comparable groups defined, you can now calculate the pay gap in a meaningful way. Most organisations look at this at multiple levels – starting broad and working towards the more granular analysis that actually tells you whether pay discrimination exists.

The overall company pay gap is the natural starting point, calculating the mean or median gender pay gap between men and women across the entire organisation. This is your headline number, telling you the scale of the overall earnings gap – but you need to interrogate further to truly understand your internal pay equity and address it. 

Cuts by function, level, or location apply the same comparison within a defined subset – the pay gap within Engineering, the pay gap at management levels, the pay gap in a specific location. This surfaces where disparities are concentrated within your organisation, helping you to get to the root cause and prioritise where to make changes.

Comparable cohort analysis means calculating the pay gap within the comparable groups you defined in step 3 – employees doing work of equal value – which gives you the most robust understanding of pay discrimination, the unexplained earnings difference between groups doing equivalent work.

Regression analysis goes one step further, controlling simultaneously for all legitimate factors that might explain pay differences within a cohort – tenure, performance rating, time in role – to isolate whether a protected characteristic remains a predictor of pay once everything else is accounted for. This is the most statistically rigorous approach to pay equity analysis. 

For most People and Reward teams, the comparable cohort approach is the right level of rigour for a routine analysis – it enables you to understand which factors are impacting pay equity in your organisation, and it prepares you for legislative requirements. 

Start with the overall company gap as your baseline, cut by function and level to find concentrations, then calculate the gap within your comparable groups to identify where genuinely equivalent employees are being paid differently.

Step 5: Analyse band position by protected characteristic

Alongside the gap calculation, it’s worth examining where employees sit within their salary bands, broken down by protected group – using compa ratio or salary range penetration as the measure.

If women and men in the same cohort have the same median salary, but women cluster consistently in the lower half of the band while men cluster in the upper half, there's a systematic pattern in how pay decisions are being made that will compound over time as those employees receive percentage-based increases.

For Isha Smith, salary band position analysis should be a standard part of every pay equity audit, and can tell you where to start with making improvements. "If you identify that salary band outliers tend to be women – or that female employees are generally in the lower part of the band whilst men are in the upper – it's well worth interrogating your hiring process," says Isha. "Those discrepancies don't appear by accident."

Step 6: Examine where in the lifecycle gaps arise

Don't just analyse the current state of pay – examine where gaps are introduced and how they develop over time. 

Compare starting salaries for new hires broken down by protected group, promotion rates and promotion pay increases by group, and merit increase percentages by group.

As Matt McFarlane, Director at FNDN, observes: "Companies publishing their data and checking the compliance box are not addressing root causes.”

“Transparency alone doesn't fix systematic pay equity issues – it's the promotion patterns, role levelling inconsistencies, negotiation biases that need to be looked at deeper."

Ravio’s data, for instance, finds that the gender pay gap in tech is largely introduced at the point of hire, not through internal progression. Men and women in European tech have similar promotion rates of around 7-8% – which means that the gap that exists in current salaries was most likely there from day one. If that’s true in your organisation, hiring is the place to focus in terms of action.

Step 7: Develop an action plan (and communicate it)

Document the analysis and use it to build a remediation plan.

That plan should include immediate fixes: adjusting pay where disparities are unjustified, prioritising the most significant gaps first. 

And it should also include interrogating the root causes: if gaps are entering at hire, the hiring process needs to change. If they're concentrated in a particular function or management level, the compensation decisions being made in those areas need scrutiny. 

Fixing current outliers without addressing what created them means the same gaps will reopen in the next review cycle.

Present the plan to leadership with clear ownership, timelines, and budget implications. Pay equity fixes won't happen without executive buy-in, and the data from the analysis is what makes that conversation concrete.

Once the plan is in motion, communicate it. 

Being transparent with employees about findings and next steps – even when the results are uncomfortable – builds significantly more trust than treating pay equity as an internal compliance exercise. 

Employees don't need to see every number, but they do need to understand that the organisation takes this seriously, what it found, and what it's doing about it.

Markets shift, organisations restructure, new people are hired –gaps can reopen quickly if they're not actively monitored. 

Build pay equity analysis into your regular compensation review cycle so it's reviewed at least annually, disparities are caught early, and the fixes you've made don't quietly unravel over time.

Understanding where pay gaps come from is the first step to closing them. The actions you take will depend entirely on what the root causes look like in your specific organisation – which is why the audit comes first.

1. Audit your data and identify root causes

A pay equity analysis tells you where gaps exist. The harder work is understanding why. 

For each gap identified, interrogate the mechanism: is it in starting salaries, in merit increases, in promotion rates, in bonus eligibility? Is it concentrated in a particular function, manager, or hiring cohort?

The findings determine the fix. The most common root causes in European tech are: 

Underrepresentation at senior levels. The biggest driver of the unadjusted gender pay gap is representation. Women make up 40% of the European tech workforce but hold just 21% of executive roles. Because senior positions command significantly higher salaries, a workforce where men disproportionately hold senior roles will show a large overall earnings gap – even if every individual is paid fairly for their role. 

Gaps introduced at the point of hire. Ravio's data shows that the gender pay gap in tech is primarily created at the moment of hiring, not through internal progression. Starting salary offers for women are systematically lower than for men doing equivalent work – a finding that points directly at bias in the hiring process, whether through unconscious bias in offer decisions, negotiation dynamics that disadvantage women, or the compounding effect of salary history being used to anchor new offers.

Bias in male-dominated functions. Certain areas of the organisation consistently show elevated adjusted pay gaps. In European tech, Engineering (7.4% adjusted gap) and Data (5.5%) are the highest-risk functions – both traditionally male-dominated functions.

Caregiving responsibilities disproportionately affect women's careers. Women are significantly more likely than men to reduce hours or withdraw from full-time employment after having children. Career interruptions and the ongoing management of caregiving responsibilities limit progression into senior roles over time, compounding the representation gap at the top.

Once you've identified employees paid below where they should be – whether below their salary band or below their cohort peers after controlling for legitimate factors – address those gaps and outliers directly through pay adjustments.

For underpaid employees, the aim is to bring salary into equity with peers as quickly as budget allows – ideally immediately, or through incremental increases within the normal review cycle if not.

Without the right underlying structures, compensation decisions default to individual judgement – and individual judgement is where bias enters.

Monica Öberg, Fractional HR Leader and Pay Equity Consultant, puts it simply: "Job levelling is the most natural place to start. Well-defined levels give you an anchor for salary offers and promotions, which removes a lot of bias and back-room negotiating that leads to inequity."

Job architecture: a consistent framework of job levels, titles, descriptions, and career tracks that applies the same logic across every function in the organisation – using a job evaluation methodology to compare each role too. Without it, two people doing work of equivalent scope and impact can end up at different levels simply because they sit in different teams, creating pay disparities that are structural rather than discriminatory but equally hard to justify. 

Salary bands: defined pay ranges for every role and level, built on reliable benchmarking data. Bands give hiring managers and Reward teams a structured framework for pay decisions rather than a blank sheet. When every offer and every increase is made within a defined range for that role and level, the scope for individual bias is significantly reduced.

Together, these structures shift compensation from a series of individual decisions to a consistent, documented process – which is both the practical foundation for pay equity and, increasingly, a compliance requirement.

4. Fix the processes where gaps are entering

If the audit points to hiring or compensation review processes as the source of gaps, those processes need to change – not just the outcomes they're producing.

Remove salary history from the process – basing new offers on a candidate's previous salary only perpetuates whatever gaps existed in their previous employer's compensation.

Use your salary bands, informed by reliable benchmarking data, to anchor offers. Some companies go further and make offers non-negotiable entirely, presenting the band position based on the candidate's experience and leaving nothing to negotiate – removing the variable that systematically disadvantages women.

Review job description language. Gendered language in job ads affects who applies – male-coded words like "competitive" or "aggressive" demonstrably discourage female applicants. More neutral language broadens the pool before the process even begins.

Require diverse candidate pools for all roles, particularly senior ones. As Elena Pantazi, Partner at Northzone, notes: "Founders are tempted to go with the funnel they have, often through their network, which can be very male-dominated. Where we've seen companies be really thoughtful about this is by proactively planning to hire for a certain percentage of diversity and taking the time to broaden the funnel."

Standardise the interview process and ensure diverse panels. Unstructured interviews are a significant source of unconscious bias. Standardising questions across all candidates for a role, and ensuring panels aren't all-male, reduces the scope for subjective judgement to influence both hiring decisions and offer levels.

Analyse pay equity before other adjustments are made. Vicky Peakman, Director at Fair Pay Partners, is clear on this: "Pay equity fixes should go in first, so that any performance or market increases are on top of those." Applying a market or performance increase to a salary that already reflects a pay equity issue compounds the disparity rather than resolving it.

Use a merit matrix that factors in band position alongside performance – ensuring merit decisions don’t compound existing disparities.

Ensure manager discretion has clear guardrails and documented rationale. Without structure, discretion becomes a vector for bias rather than a source of useful context.

Train managers on bias and equip them to make and explain compensation decisions consistently. As Monica Öberg notes: "Don't make them improvise – give them the frameworks, the data, and the example scripts they need."

Design calibration sessions that specifically review for patterns across protected groups – not just whether individual decisions are defensible, but whether the picture across the whole team reveals any systematic skew.

Run a final pay equity check before adjustments are communicated. Once all decisions are finalised, review the full picture for patterns before anything goes out to employees – it's the last opportunity to catch anything that's slipped through.

Track outcomes over time to assess whether the review cycle is improving the overall picture, not just whether individual gaps were fixed in this cycle.

Running a pay equity analysis in a spreadsheet is possible, but it's slow, error-prone, and increasingly impractical as the analysis needs to become a regular part of the compensation cycle rather than an annual project. 

Dedicated pay equity software automates the data collection, statistical analysis, and reporting – making it significantly easier to identify where gaps exist, understand why, and track whether remediation efforts are working over time.

Most platforms integrate directly with your HRIS and payroll systems to keep data current, offer dashboards that let you cut the analysis by function, level, location, and protected characteristic, and produce reports that can be shared with leadership or used for regulatory reporting.

The main options in the market serve different needs and organisation sizes.

Ravio’s pay equity analysis tool sits within a broader compensation management platform – combining pay equity analysis with salary benchmarking and salary band management in a single tool. 

Pay equity analysis is broken down by job function, level, and location, and sits alongside real-time market benchmarking data, making it straightforward to identify where gaps exist and whether they reflect market positioning issues or internal equity issues. 

Ravio’s pay equity module is well-suited to European tech companies that want pay equity analysis connected to their day-to-day compensation decisions rather than treated as a separate compliance workstream.

Want to see how Ravio can help you manage pay equity?

Syndio is the largest specialist pay equity platform globally, used primarily by large enterprises. It uses regression analysis to identify and explain pay gaps across gender, race, ethnicity, and other demographics, and includes tools for modelling remediation costs and ongoing monitoring. 

Syndio is strong on analytics depth and compliance reporting; but enterprise pricing may make it less accessible for smaller organisations.

PayAnalytics (by beqom) is a specialist pay equity platform with strong global compliance coverage, including EUPTD reporting.It includes job evaluation tools for defining comparable groups, regression-based gap analysis, and budget-optimised remediation recommendations. 

It’s well-suited to organisations with complex global workforces and significant compliance requirements.

PayParity is a purpose-built pay equity platform focused on rigorous statistical analysis across multiple protected characteristics simultaneously – gender, race, age, disability, and their intersections.

It includes AI-powered remediation tools that identify the most cost-effective adjustments to close gaps, and covers compliance reporting across global jurisdictions including the EUPTD. It’s primarily suited to larger enterprises with mature pay equity programmes.

Gradar is a job evaluation and compensation platform that uses a point-factor methodology to grade every role in the business against objective criteria, then layers pay equity analysis and gender pay gap reporting on top of that foundation. 

It combines job architecture, salary band management, market benchmarking, and equal pay analysis in a single platform. 

Gradar is well-suited to organisations that need to build or formalise their job evaluation framework as part of their pay equity work, rather than organisations that already have a mature job architecture in place and need deeper statistical analysis of gaps.

Brightmine combines pay equity analytics with HR compliance resources and UK salary benchmarking data. Its pay equity module provides continuous monitoring of pay gaps across demographics, forecasting and predictive modelling, and reporting tools. 

Brightmine is best suited to UK-based organisations that want pay equity analysis integrated with employment law guidance and UK-specific benchmarking.

Pay equity: what it is, how to run a pay equity analysis, and how to close the gaps

A merit matrix combines performance ratings and salary band position to ensure consistent, equitable pay increases across your organisation – learn how it works, including a worked example.

Compensation reviews are one of the most complex processes a Reward team runs. You're trying to reward strong performance, stay competitive with the market, and maintain pay equity – all at once, across an entire organisation, with a fixed budget.

Without a structured framework, something usually gives. 

Managers apply increases inconsistently. High performers in already well-paid positions drift further from peers doing equal work. Pay equity issues that were already present get quietly compounded with every review cycle.

A merit matrix solves this by bringing structure to one of the hardest decisions in the process: how much should each employee's pay increase, and why?

A merit matrix is a structured framework used during compensation reviews to determine how much an employee’s pay should be adjusted. It combines two key metrics: an employee’s annual performance rating and their position within their current salary band.

Sometimes referred to as a merit grid or salary increase matrix, the primary purpose of a merit matrix is to ensure consistent and fair decisions during a pay review.

The main benefit of a merit matrix is to ensure pay increases are both performance-driven and equitable. 

Employees with the same performance rating receive different increases based on where they sit in their salary band – so someone paid below the midpoint gets a higher increase than a peer at the top of the band with the same rating. 

This matters because two employees doing equal work can easily end up at different salaries – through differences in starting salary negotiations, or simply through tenure and accumulated pay increases over time. Without accounting for band position, the same performance-based increase for both widens that gap further with every review cycle.

Used correctly, merit matrices also make merit increases more market-aware. 

If salary bands are refreshed against up-to-date benchmarks before the matrix is applied, the band position automatically reflects how competitive an employee's pay is relative to the market target as well as relative to their peers.

"A merit matrix is an effective and transparent tool for rewarding performance. It simplifies the process, eliminates unnecessary noise, and provides the clarity that people value. While it can feel overly structured for smaller organisations, the positives – especially when supported by fair performance assessments – far outweigh the negatives. For companies committed to rewarding performance, a merit matrix is a valuable framework."

💡 How commonly used are merit matrices?

Data from Ravio’s 2025 Compensation Trends report highlights an also reveals a near-even split in whether companies use a merit matrix to determine their pay increases – with 49% of companies using merit matrices and 51% opting for alternative methods.

A merit matrix takes the form of a grid with two factors: band position and performance rating.

Each cell in the grid contains a recommended salary increase percentage – and the combination of the two inputs (performance and band position) is what determines it.

Band position measures where an employee's current salary sits relative to their salary band, typically given as either a compa ratio or salary range penetration figure. 

It’s included in the merit matrix because an employee at 0.8 of their band midpoint is being paid below the market rate for their role and level – and potentially being paid inequitably compared to peers performing the same but at a higher band position. 

The matrix reflects that by assigning them a higher increase, accelerating the correction of that gap to bring consistency to salaries and pay progression across the team.

💡Tip: Refresh your salary bands against current market benchmarks before you build your matrix

Band position will always be an indicator of pay equity across the band, but it’s only a meaningful reflection of market positioning if the band midpoint and range are up-to-date with current market rates.

Refreshing your benchmarks and bands first means market movements are already absorbed into the band position by the time you implement the matrix – so the matrix handles market adjustments, pay equity, and performance-based increases in one step.

Performance rating sits on the other axis, using a standardised scale (such as 1-5) that’s applied consistently across the organisation. 

The higher the rating, the higher the recommended increase – but always in combination with band position, not in isolation.

This is why having a well-defined, calibrated performance review process in place before applying a merit matrix is a must. If ratings aren't consistent across teams and managers, the matrix can't do its job fairly – you'd be applying a structured framework on top of inconsistent inputs.

The combination of the two factors means that the cells where low band position meets high performance carry the largest increases – these are employees who are performing strongly but whose pay hasn't kept pace. 

The cells where high band position meets lower performance carry the smallest increases, or zero. Every other combination sits somewhere in between, following the same underlying logic.

💡Tip: Once you have your matrix logic, run a test scenario before you commit to it

Apply the percentages to your actual employee population and see what the total cost looks like against your budget before rolling it out.

You might need to iterate on the cell percentages to ensure you stay within budget – but it's much easier to do that at this stage than after increases have been communicated.

Below is an example merit matrix using a 1-5 performance rating scale and compa ratios ranging from 0.8 to 1.2, with a maximum increase of 14%.

To see how this plays out in practice, let’s take two employees, both rated 4 out of 5 in their performance review.

Employee A has a compa ratio of 0.85, meaning their current salary sits below the midpoint of their band. According to the matrix, they'd receive an 11% increase. Their strong performance is recognised, and the increase also begins to close the gap between their current pay and the market midpoint.

Employee B has a compa ratio of 1.15, meaning they're already paid above the midpoint. Same performance rating, but the matrix recommends a 5% increase. Their performance is still rewarded, but the smaller increase reflects the fact that their pay is already competitive within the band.

What alternatives are there to using a merit matrix?

While merit matrices are a widely used method for determining pay adjustments, they’re not the only approach.

Depending on your organisation’s needs, compensation philosophy, and focus areas, there are several alternatives to consider.

Market-based adjustments focus solely on aligning employee salaries with external market rates – prioritising market competitiveness and fairness across roles and locations without considering individual performance.

Organisations relying on market-based adjustments use up-to-date salary data (through real-time salary benchmarking tools) to review and revise salaries. 

Performance can still be rewarded separately through bonuses or other incentives like accelerated promotion timelines.

2. Manager discretion on salary adjustments 

In this approach, managers are given a budget and broad guidelines by HR but have full discretion to allocate salary increases based on their assessment of their direct reports' contributions.

This method enables tailored rewards for unique situations, critical roles, or high-performing employees who may not fit neatly into a structured model like a merit matrix. 

However, it requires consistent manager training and calibration sessions to mitigate risks of bias, inconsistency, or favouritism. Therefore, this approach is best suited for organisations with strong management training processes and confident leadership capabilities.

A simpler alternative is applying uniform salary increases across employees – which could either be:

Across-the-board increase: Everyone at the company gets the same increase, for instance to reflect broad changes in inflation (this could also be tailored per function, seniority level, location, etc).

Pre-defined criteria: For instance, all employees receiving a top performance rating (e.g. 5 on a 1-5 scale) could receive a 5% raise, not accounting for their band position like a merit matrix does.

While this method simplifies the process, it may lack the nuance needed to address pay equity or retain competitiveness in the market for each role and, particularly, for top-performing employees.

The 9-box grid is similar to a merit matrix, but with the addition of including employee potential as a factor alongside performance and band placement. 

The benefit of including employee potential is that talent development and succession planning are factored into the equation – rewarding not just current performance, but also leadership potential within the company, and therefore reflecting the importance of retaining that individual long-term.

According to Rob Green, Global Rewards Consultant, Founder of Darwin Total Rewards, and an Associate within the MCR Consulting group, the 9-box grid “demonstrates organisational and leadership maturity when all three elements are working together effectively.”

To wrap it up: Is a merit matrix right for your organisation?

A merit matrix works best when both performance and maintaining fairness are core factors in how you adjust base salaries – and when you have the foundations in place to make that fair. 

That means a consistent, calibrated performance review process, up-to-date salary bands, and a clear compensation philosophy that supports pay for performance.

If those foundations aren't there yet, the matrix can't do its job properly – and the risk is that you apply a structured framework on top of inconsistent inputs, which compounds rather than corrects pay inequities.

How to use a merit matrix for fairer pay reviews

Join Amanda Moore (Senior Director, Reward, Performance and Analytics at Beyond ONE) and Natela Mosulishvili (Senior HRBP – Compensation and Benefits at Suir Engineering) for an honest conversation about how to handle employee relocation from a reward perspective.

Relocation sits at one of the messiest intersections in reward. 

It touches compensation philosophy, tax, benefits, legal compliance, and some of the most difficult one-to-one conversations a reward professional will have – and yet most teams are figuring it out case-by-case, with a policy that was written for a different business.

Amanda and Natela have navigated it from very different angles. 

Amanda spent six years leading global mobility at Gymshark, moving people into new markets as the business scaled internationally, before relocating to Dubai herself for her senior director role at Beyond ONE – a scale-up spanning multiple markets with a rapidly growing headcount. 

Natela brings a different lens entirely: a highly technical, project-based workforce at Suir Engineering where mobility is built into how the business operates, and where the complexity is less about the employee wanting to move and more about deploying the right expertise to the right place at the right time.

Together they'll work through four areas of relocation from a reward perspective:

Deciding your philosophy: does comp follow the person or the role

Building a framework: what works, what breaks, and what most companies get wrong

Product

Data

Compensation management

Solutions

Resources

Resources

Featured

Company

Comp strategy for Nordic leaders

Contents

Save your spot here

Get the Compensation Review straight to your inbox

You might also like

How to approach employee relocation – the reward perspective

Rewards through the deal: navigating M&A from due diligence to integration

How to build a compensation framework (and stop making ad hoc pay decisions)

Stay in the loop with the latest insights, trends, and compensation guidance from Ravio

Product

Resources

Company

Legal

Solutions

Compare

Learn