Time is ticking: why you should start working on a strategic compensation policy now

Only half of Belgian companies have a compensation policy. Europe mandates that companies be more transparent about salaries starting in 2026. Without a compensation policy, this will be difficult. Your compensation policy also determines your attractiveness as an employer. Thoughtfully implemented, it can even boost your growth. It’s time to work on it, but how do you approach this? Expert Virginie Verschooris provides advice.

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July 16, 2024

Employees cite pay as the main reason they choose a company, above job content or job security. Dissatisfaction with pay is the main reason for leaving. Compensation is crucial in any HR policy, yet only about half of Belgian companies have a compensation policy, according to research by SD Worx. As a managing consultant for rewards at SD Worx, Virginie Verschooris helps companies develop such policies. With two decades of experience, she is well-versed in strategic HR policy, specializing in compensation.

Why do companies need a compensation policy?

Virginie Verschooris: “Every company wants to pay its employees fairly and correctly. Establishing a compensation logic ensures competitive pay. It determines your attractiveness as an employer. Attracting and retaining talent is essential, but a smart compensation policy also helps you grow. If used strategically, your compensation policy supports your business objectives. It provides a framework and allows you to focus on what is important for your company.”

How do you turn your compensation policy into a strategic tool?

Virginie Verschooris:“Suppose you run a marketing company. You want to stand out by attracting the best marketers in the market. For your organization’s marketing roles, you might opt to pay a higher market salary, while for other jobs in your organization, you choose the median. You set individual priorities and determine which areas to focus on.

Your compensation policy can also motivate people to achieve specific goals, such as selling a new product or service you’re launching. If they succeed, the employee receives a bonus. The goals are usually derived from the organization’s strategic objectives. The bonus can take various forms, such as a cash bonus, a salary bonus under cao 90, through the cafeteria plan, or in another way. You strive for the highest return for the employee and the optimal cost for the company. As reward experts, we help solve this puzzle. A good compensation policy finds the balance between the value for the employee and the cost for the employer.”

How do you start developing a compensation policy?

Virginie Verschooris: “A compensation policy is tailored. We always start with an analysis, both an ‘as is’ analysis and a SWOT analysis. How are salaries determined today? How much do people with a certain role and responsibility earn? What does the total package consist of? What works well, and where is there still room for improvement?

Then we examine the job structure (an overview of all roles within an organization) and internal equity through job evaluation and classification. Through benchmarking, we then compare salaries with the market. For this, you need data from an HR provider. At SD Worx, we process millions of payslips annually, a portion of which we use in our reward tools after thorough analysis. This aggregated information allows us to make comparisons by sector or joint committee, by region, and by company size. Based on this information, and considering internal equity, you can motivatedly set the salary scales for your jobs. A salary scale has a benchmark salary with a minimum and a maximum point. The difference is the salary range, which gives people a perspective on their potential growth. Are the salary differences among colleagues justified, for example, linked to authority or experience? Differences are okay, but you need to justify them.”

Are the salary differences among colleagues justified, for example, linked to authority or experience? Differences are okay, but you need to justify them.

Virginie Verschooris, Managing Reward Consultant

How do salary scales and pay grades differ? Are the latter a thing of the past?

Virginie Verschooris: “A pay grade indicates the minimum salary per sector or joint committee. A salary scale is part of a compensation policy to which roles are linked. Pay grades are archaic in the sense that the link to performance is missing. Regardless of your effort, your salary increases with the number of years worked, up to a ceiling. This principle affects motivation. Pay grades can stifle motivated people in their growth. The public sector held onto them for a long time, but today, for example, local governments are increasingly opting for salary scales.”

What’s wrong with the CEO who says: I’m the boss, and I decide who gets a raise?

Virginie Verschooris: “That way of working inevitably leads to imbalances over time. Without logic, there is no consistency. What if the company grows? Does the CEO still have time to do it? Because their method cannot be replicated. What if they leave? It’s not a forward-looking approach.

It also poses a risk. There used to be a taboo on pay. Today, younger generations compare their payslips. Differences you can’t justify are the breeding ground for social unrest.”

How many companies in our country have a compensation policy?

Virginie Verschooris: “Recent research by SD Worx shows that 47% of Belgian companies have a strategic compensation policy. Not even half, so there is work to be done. Because the clock is ticking.

The impending European ESG directive requires companies to communicate more transparently about pay starting in 2026. Employees will then have the right to know their salary scale and the average salary of people in the same role. Job applicants must be given mandatory information about their starting salary and salary range, how much they can earn over time.

By enforcing transparency, Europe aims to address the pay gap. Companies will be required to report on their pay gap and take measures to close it. In some European countries, men earn up to 17 percent more than women for the same work. In Belgium, the difference is currently 5 percent, making us a good student.”

Recent research by SD Worx shows that 47% of Belgian companies have a strategic compensation policy. Not even half, so there is work to be done. Because the clock is ticking.

Virginie Verschooris, Managing Reward Consultant

Our average is good, but there may still be significant differences between companies? Because if half of our companies don’t have a compensation policy, many entrepreneurs might not be aware of the pay gap in their company. What do you advise them?

Virginie Verschooris: “Investigate your numbers as soon as possible. Do you find a problem? Then you still have time to take measures so that you can present a good report in two years. It depends on your company size, but on average, it takes about four months to thoroughly develop a compensation policy.

Research shows that European companies today consider pay transparency their biggest challenge in terms of compensation. A compensation policy is the solution. You can only be transparent if you have a policy. Another major challenge is controlling salary costs, and a compensation policy makes a difference here as well.”

In what way?

Virginie Verschooris: “In the compensation policy, you define how employees grow, in other words, what margin they have in each role. Through salary evolution models, you calculate the cost of your compensation policy over time. The HR controller has an important role here. Software tools like Youbo also help. They make the process of salary increases and bonus distribution more structured and transparent, providing better insight into the costs.”

Software tools like Youbo also help. They make the process of salary increases and bonus distribution more structured and transparent, providing better insight into the costs.

Virginie Verschooris, Managing Reward Consultant

Due to indexation, the salary of Flemish employees has increased by as much as 22 percent in five years. This leaves little room to reward employees who have performed exceptionally. What is the best approach as an employer? Give a small raise to many or a large raise to a few?

Virginie Verschooris: “The last few years have been unprecedented. People see this salary increase as evident because the index is legally regulated, but in Europe, we are truly an exception. It’s important to understand that companies have little additional margin to increase salaries further. The interprofessional agreements also impose limitations.

Research shows that a salary increase of less than three percent has no impact on motivation. A drop in the ocean. You’re better off giving the money to exceptional performers or people who achieve good results and still have growth potential according to their salary scale.

Fortunately, there are more ways to appreciate people than purely financially. Generation Z values work-life balance more than previous generations. Vacation days, training, remote work: consider these factors when developing your compensation policy.”

Generation Z values work-life balance more than previous generations. Vacation days, training, remote work: consider these factors when developing your compensation policy.

Virginie Verschooris, Managing Reward Consultant

As an employee, you look at your payslip, but that’s just part of the story.

Virginie Verschooris: “Correct. I advocate for making other benefits more transparent. With a total reward statement, you provide employees with a detailed personal overview of what they receive. For example, in a letter or an annual notice. This makes those non-financial matters transparent. This has been done longer in America. The trend is spreading to our regions.

Even the employer cost could potentially be included in such an overview. It helps people get a better understanding of what the company does for them. Such a total reward statement is a form of internal HR branding. We do too little of this type of branding. We focus on charming candidates, but it’s equally important to convince your employees that they are working in the best place.”

Finally: how often should you review your compensation policy?

Virginie Verschooris: “My advice is to update the salary scales every three to four years. Or after periods of crisis when indexations have determined salary increases. Market demand and supply change. Legislation changes. New jobs emerge. Trends like remote work gain importance. Compensation is a dynamic matter. If you neglect this update, you lose your position as an attractive employer.”