Picking up on the cliffhanger from last Monday, today I am going to tie the knot on how to deliver an inclusive reward philosophy that promises fair & transparent pay to current and new employees – irrespective of ethnicity, gender and location?

So, a big question right in front of many companies preparing for 2026 (regarding HR and rewards obviously), is “what constitutes a fair and transparent pay promise in 2026? The talk of the town has been very much about transparency and the new EU directive supporting this and pending for member state implementation. But the talk has changed slightly to now being more on fairness in rewards or offering a fair employment deal of what we could call the new “psychological contract or as Mercer calls it the “thrive contract” to soon be followed by the “lifestyle contract” or elaborated as:

“For organizations to preserve trust and for employees to thrive, the latter needs to feel like they’re getting a fair deal, and their full lifestyle needs are being addressed!”

(Mercer: Global Talent Trends 2024-2025, p33)

Total rewards cannot solve the whole talent request of lifestyle optimization though it constitutes a significant part of the overall employer value proposition. The key to preserving trust is not only to build trust by a solid people promise, but to follow through with actions and example from the company to its current and future employees. So, dear friends, the time of communicating a clear policy while practicing otherwise, is now in the past. Exceptions or discretionary allocation of pay opportunities are NOT fair! People expect that they can trust that their employer handles rewards in a consistent and transparent way so that they are not cheating themselves by NOT trying to unpatronizing their own individual deal through negotiation or making their influence in other ways. Opportunists or those bending for them are not welcome anymore. Especially Gen-Z expects companies to manage their people’s business in an ethical way and follow through on their promises – otherwise they will deselect or leave the company for one of better standards.

So, “Walk the Talk, Or Walk Alone”

Subsequently, what is then the right approach to sell the new reward deal to people leaders, employees and new candidates? And who are you dealing with in the mix of boomers, gen-x, millennials, gen-z and soon gen-alpha’s. 5]

A “millennials” reward philosophy, delivered by “boomer” leadership…?

Or,

A “gen-z” driven pay proposition distributed by gen-x performance appraisal?

The solution lies in a clear, engaging and committed reward philosophy. However, what does that mean?

Delivering an engaging reward value proposition:

The reward philosophy:

Companies are looking at a different psychological contract than they used to. It is no longer enough just to state that “We will pay a competitive compensation on market level, to ensure attraction, motivation and retention of top talents”. Money and ambition are not enough anymore. Companies will have to prepare a reward philosophy that presents a purpose driven value proposition that both current and new employees can relate to, but not least that they can buy in to from an ethical and fulfillment perspective. Employers should expect that they are being tested on their ability to deliver on their reward promise. So, a committed promise that is followed through in everyday practice and by ongoing proof in reporting on reward demographics in the company (e.g. equal pay, representation and performance appraisal etc.)

The composition of the reward philosophy should place greater focus on presenting the holistic value proposition beyond pay and competitiveness. Mainly as market competitiveness will matter much less than internal fairness, shared rewards and flexible compositions – especially requested by younger segments (Mill, Gen-Z & Alpha’s). But also, a clear pledge outlines how the company plans to act in terms of equality, transparency and fairness across diversity dimensions as e.g. genders, cultures, ages, geographies and professions. And the ethical standards beyond not discriminating on employee group compared to others, will also have to deal with how the employer builds trust, but for the individual to be ensured that he or she is treated consistently according to the company’s Reward Processes, but also trust in the company as a well behaving employer when it comes to e.g. executive remuneration or job security. The latter will be increasingly important with increasing focus on employers to act responsible when bringing people on board and not initiating layoffs the year after due to unforeseen cost cuts. Employees expect sustainable workforce planning too!

The key words for a good reward philosophy are “a holistic, ethical, fair, diversified & committed pay promise. But of course, there is still a competitive pay level for the people in total, but not necessarily for each individual.

And other good checkmarks when designing the reward philosophy are:

• Define the company reward philosophy in clear language

• Ensure the reward value drivers are relevant

• Deal with the key dilemmas – a good strategy does not get agreement by all

• Make sure the reward principles fit your company

• Prepare a transparent governance structure

• Ensure a consistent policy framework

Engage with your People Leaders

Who should be delivering a good message to the people? You, Top Management, The Head of Rewards, the HR business partners and managers? Maybe… Or maybe ask those already talking to your people? Yes, the People Leaders.

Rewards are, if not the most powerful people process in the company, then close. And best delivered through people’s leadership!

People leaders have the best knowledge about the members of their team and thus have the best ability to utilize the opportunities and limits within company reward processes and tools, to optimize the value proposition for the individual. As well as ensuring balancing reward allocation in a fair and transparent way, given the right direction by process guidance and from HR business partners. If the company reward philosophy and core principles have translated into a solid reward model with clear process and guidance, leaders will ensure the right balance between individual differentiation and transparent fairness across people doing the same job in the company. Trusting people leaders doing the job right transposes this trust to their own people. If the reward philosophy has a personification into a leader, you trust and can make the agreement of “if I bring this to the table, then I can expect this in return”

Of course there is more to good reward leadership, but here are a few items to keep in mind when designing the delivery of your reward model through leadership.

The good focus areas when engaging with your people leaders are:

• Ensure top management buy-in to the promises of the reward philosophy

• Define clear reward value drivers for people leaders

• Prepare cascaded messaging from executives to people leaders

• Build it into relevant leadership training - JiT eLearning or leadership certification

• Follow-up on deployment and impact – minimum to all new people leaders in the company

And just a closing remark on leadership and organizational design. Many people leaders with only a few direct reports are unable to ensure fair and consistent distribution of rewards—ultimately undermining any good intentions around pay fairness. So, fix your span of control and layers of management before setting out to build an engaging reward philosophy. A people leader needs a team of 8 to 10 individuals to be able to both differentiate and align the appropriate allocation of rewards.

Engage with your People

Who are we talking about when talking about a fair and engaging reward philosophy?

People, Your People!

Your current as well as your future employees (and some would include past employees as well, hoping they would come back later in their career)

Let’s start by looking at how to address your current employees in an effective and engaging way.

An effective communication strategy for delivering the messages of a new (or renewed) reward philosophy and reward value proposition would need to be relevant, timely and concrete for the individual to take notice. As stated above an effective reward communication must be delivered by the nearest leader to be credible, of course supported by top management and HR. But as the employee’s reward contract is between her/him and their nearest people leader, this is where the engagement and commitment for mutual success will emerge. And the people leader must own the promise, meaning believing and living it. So, expect time to build trust from your people leaders that your reward processes work and that they will be able to deliver their reward promise to their people. This process typically takes three to five years!

As trust is hard to build—especially when it comes to something as tangible and sensitive as fair pay—your people leaders need a solid foundation to lean on while building trust around reward allocation in their teams. That foundation can only come from a strong and committed pledge to fair reward practices from top management, backed by clear examples that this is actually happening across the company. Exceptions to your reward policies—like unclear promotions, discretionary payments, or secret benefits—are poisonous pills when it comes to building trust in fair reward allocation.

Be clear and open in your reward value proposition, stick to your pledge of a fair allocation, and follow-up by showing your people that you are consistently doing so.

The good focus areas when engaging with your people are:

• Make sure to reach all your people in a consistent and transparent way

• Focus on fairness and suitable allocation of reward to all people in the company

• Remember that leaders are employees too

• Build in key reward messaging into all reward (or HR) core processes

• Be consistent in tangible delivery of reward communication – through pay documents and people communication etc.

Boiling things down to what will make a change, there are 4 occasions for when people’s pay is set or changed, meaning this is where you can make an impact in ensuring a fair allocation of pay in your company. 3 that will be good drivers for achieving fair pay, and 1 that is just making things worse.

1) Setting pay for new hires

The initial pay setting for new people into your company is where you have the chance to make things right, by offering the right salary and consistent incentives and benefits etc. needless to say, the reward package must remain competitive to attract qualified candidates. But think about whether your talent always must be the best qualified or you could do with the optimal qualified for the position you need to fill. Often, the pay difference between e.g. number 1 and no. 3 on the candidate list is many times bigger than the decrease in qualifications. So, by choosing no. 3 candidate you might lose out 2-3% on qualification but might easily gain 10-15% lower salary expectations. Often the highest qualified for a job opening, is also the outlier on salary expectations due to her or his personal career steps and focus on optimizing own pay. AND, that difference might just be the one that brings the chosen candidate inside the company salary range, ensuring a match to the company’s fair pay practice. A fair pay company must focus on setting pay right, both in the market and internally in the company. A wrong pay setting might be the poisons pill violating the achieved trust in a fair pay practice, as the internal transparency and openness about pay will reveal a bad pay decision immediately.

2) The yearly salary review process

The ongoing pay setting to ensure continued fair pay for people in your company is the yearly salary review process. Some call this the salary adjustment process, but sometimes no change (or adjustment) is also the right decision, so to ensure effectful communication that people leaders can live up to – call it what it is; a review that might (or might not) lead to a change in people’s salary and reward package. Choosing the right words improves your effectiveness in your communication.

As the purpose of a yearly salary review process is mainly to ensure that the company’s competitive pay position in the labor market is maintained (or changes if needed), this is done by selecting an overall salary budget for the company that ensures the right and competitive pay position in the market for the year to come. So overall the company’s pay budget is based on expectations of salary increases in the coming year. And Inflation is the consequence of this (as any national bank director would agree to!), hence inflation is not a factor when deciding on pay, it’s the consequence of that decision.

But the relevance of the annual salary review when it comes to achieving fair pay, is how the process is supported by people leaders to reinforcing a fair allocation of salary increases based on gender neutral factors and with the offset of the value of employee’s job in the company. So here it is important to ensure that pay changes are based on neutral factors, such as job level, personal performance or contribution to team or department success, position in the salary range or important skills or capabilities. All factors that should be accessible by all people.

At the annual salary review it’s also where the company has the chance to make structural decision to re-allocate budget to improving pay fairness, either by building reallocation mechanisms into how the general budgets are allocated to people leaders and the guideline to how they should allocate pay changes to their team. Or by holding back a portion of the total pay increase budget and spending this on focused initiatives such as ensuring that all high performers paid low in the salary range get an extraordinary salary increase until they sit right in the range. And some of this cost could be funded by slowing down salary increases for those low performing but high paid people, any companies also have. In other words, all pay must be variable over time.

If the company has the right competitive position in the labor market as a whole, any pay inequity issues should be fixed inside the normal salary increase budget, otherwise the company will lose profit margins by increasing its cost base faster than its competitors.

3) Promotion or demotion

Promotion – the free-bee alternative to a pay increase or a real career progression for the internal candidate for a job opening. Historically promotions have been seen as something different to be leaving for a job in another company – when it comes to where to set the pay in the range. This perspective must now be recalibrated to support a fair and aligned recognition of paying people with jobs of similar value in line with each other. Companies can’t afford to promote people without a real business reason, as when they don’t really need people to do a significantly different job (of higher value) they also tend to offer lower pay than the job should be worth. It’s the “pissing you own pants” trap, as the employer will both risk an unfair pay claims when the person finds out they are paid below the company pay range, but more importantly, that person will leave the company once they finds out that they are unfair paid for a job that is not really what it was sold to be. Titles without protein, carry little value in today’s world – people will just use this as a convenient steppingstone for a real career progression in another company – to a fair pay”

The foundation for a fair and transparent promotion practice is a well establish job governance – not just a well-designed job architecture, but a well-designed job and promotion governance process based on the companies clearly defined operating model and transparent process for posting all jobs internally as well as externally and be clear on when jobs are really growing in value compared to each other. People can’t understand when job titles are advancing without any substantive change in their content. Using titles as retention method are just driving title inflations – not keeping people.

Once a fair and transparent promotions (or hiring) practice has been established, the same approach to salary setting should be applied to internal candidates as for external ones. This will drive a fair but also competitive pay-setting approach. If external hires are treated as internal – they will not create pay inequity. And if internals are treated as externals – they will stay as the salary is both competitive and fair.

«a good rule of thumb is to set the new salary when promoting on the same relative level (C/R to the midpoint of the range) as for the old job - but not above midpoint»

And for demotions, the principle is the same – just in reverse! The only fair and sustainable way to treat your people is to offer them a real and durable solution once they have peaked in their career, and want to stay with the company, even on a lower-level job. Offering to let a person keep their pay level unchanged for a job of less value to your company, will just piss off all those looking at it, as transparency requirements will force you to be fair – sooner or later.

A person who gets to keep a higher level pay in a new lower-level job will screw up you pay equality, but more importantly piss of everybody who are paid right for the same job level. And the person in question will never be able to deliver on performance expectations under too high pay – they will be the ones laid off by the next cost-cutting event anyways.

So, treat demotions as an internal hiring process and set the new salary the same way!

4) Off cycle adjustments

Off-cycle salary adjustments, market (retention) adjustments, equality adjustments etc. take many forms and practices across companies. The common denominator is that these types of adjustments are symptoms of something broken and consequences of either lack of structure or poor management. It’s like building a new house, if you make sure to use a good architect, use good materials, apply good craftsmen and plan a sustainable maintenance cycle – you don’t need to fix sudden cracks in the wall or unexpected broken pipes.

Companies only need to apply off-cycle adjustments if one or more of the 3 ordinary pay setting processes described above have been broken. At best you are just making things worse, so there is nothing more to say about that!

But what about bonuses and benefits, they said?

Certainly, variable pay, and incentives have their place in today’s reward practice. The main challenge is to make the way variable pay practiced both transparent and perceived fair to all. Not only the vertical difference in bonus opportunities between the CEO and people on the floor, but also the horizontal alignment of variable pays for people doing similar jobs in the company – what can differentiate bonus for equal people?

Needless to say, that your house must be in order first. So, clean up the differences in bonus levels due to historical reasons (e.g. demotions as described above) as well as remove any discretionary or unfair practice around how bonus payments are being determined.

The key to a fair and transparent practice when it comes to variable pay and incentives are that the eligibility and baseline for achieving payments should be fair and consistent for people doing jobs of similar value to the company and only differ for obviously and objective reasons like geographically or functional differences – newer on discretionary or historical basis.

And how companies determine the bonus payout should be done in a similar objective and clear manner. Here you might need to go back to basics with your performance appraisal process. Bonus based on achievements are either on company, area, team or individual level. Common for all tiers are that achievements should be based on clear and upfront defined targets that can be measured or determined on an objective and fair basis. And YES, non-financial targets can be defined and measured even without a numerical calculation. Performance management is much more than the well-known 5-8 financial KPI’s, as it is much more than the relationship between manager and employee. Establishing the “perfect” performance management and appraisal system for your company is beyond the scope of this article, but I can reveal that pre-defined ambitions, objective target setting and an unbiased and transparent calibration of achievement is the key ingredients in that soup. So, stay tuned for more on fair and transparent performance management in a future article.

To conclude, bonus payments must be determined on an equal basis for equal people!

…but aren’t you forgetting about benefits?

The interesting thing about fair and engaging benefits is that it is not so much about how they are granted to your people, but more about what is available for your people to feel welcomed and acknowledged in your company. Of course it’s a given, like for bonus, that you have a clean and consistent benefit practice based on a clear benefit policy that offers the same benefits for people of similar value and under the same employment location. That being said, prerequisites and level-based benefits are becoming a thing of the past. Companies are now focusing more on providing a sustainable proposition on insurances, medical coverage and well-being suitable for the location and life stage of their employees. The challenge has shown to be to target the benefit strategy to all employees through different life-stages and as benefit programs often are rigid to change and update, it is often difficult for employers to transform their benefit plant to suit new generations as these progresses through the employment life cycle. Add to this, that employment tenure has gone down and especially the new generations are seeking new employment forms, it has become difficult for companies to provide a relevant and engaging benefits program to all employees. As the purpose of this article is not how to design the perfect benefit program, I will leave this to a later article – so stay tuned.

I can say though, that the key to fair and engaging benefits is to advance your benefit strategy to focus more on younger and future employees of your company, than staying stuck on retirement and prerequisite heavy benefit programs.

Engage with Candidates

Building Trust Through Fair Pay: Engaging external candidates with transparency and purpose

To attract top talent in today’s competitive market, companies must adopt a transparent and value-driven approach to rewards communication. A compelling fair pay value proposition begins with making the company’s overall reward philosophy and framework accessible to both current and prospective employees. By openly sharing the principles guiding compensation, benefits, and link to career progression, companies signal integrity and consistency in how they ensure fair pay for their people.

Supporting materials such as plan guides, bonus and merit letters, and benefits brochures play a critical role in reinforcing this transparency. These documents should clearly outline what employees can expect in terms of performance-based pay, career development incentives, and holistic well-being offerings. Standardizing and simplifying these materials ensure consistency in messaging and reduces the perception of subjectivity.

Offer letters and talent acquisition communications are pivotal moments in the candidate’s experience. These should go beyond numbers, linking compensation to the company’s purpose, values, and performance culture. Personalized, clear communication builds trust and allows candidates to make informed decisions about their future with the company.

Finally, integrating your value proposition across digital channels - career portals, LinkedIn, and other social media platforms - allows companies to consistently communicate their fair and transparent deal to a broad audience. Publicly committing to equitable pay practices, inclusive benefits, and transparent career pathways demonstrate authenticity and build employer brand credibility.

A good example of this is Novo Nordisk, who are planning to launch a public pay promise communication in 2026, including external transparency of salary ranges, bonus levels and significant benefits in job ads as well as further information requirements on total rewards by country and globally. 4]

In essence, companies that articulate a clear, fair, and consistent pay value proposition—across internal and external touchpoints—enhance engagement, reduce negotiation bias, and position themselves as employers of choice.

So how do you go about aligning your employer value proposition to target those candidates looking for a fair deal?

Embedding Fair Pay in the Candidate Experience

To catch the attention of today’s talents, companies must embed fairness and transparency into every stage of the candidate journey. A compelling fair pay value proposition starts with openness and consistency.

1. Public Reward Philosophy - Make your reward philosophy and fair pay promise accessible to current and future employees. Clearly communicating how pay decisions are made—and how performance and employee contributions are rewarded, and not least that your company commits to deliver on this —signals commitment to equality, builds trust, and aligns expectations early in the hiring process.

2. Clear Reward Model Communication - Public salary ranges, bonus plan guides, and benefits brochures should be simple, consistent, and candidate friendly. Use plain language to explain eligibility, pay setting and performance criteria, and timing. Clear documentation empowers candidates to make informed decisions and helps demystify rewards and fair pay.

3. Transparent Offer Process - Offer letters and talent acquisition communications should reflect the company’s reward principles. Explain how base pay, bonuses, and benefits relate to the job’s scope, performance expectations, and the company pay policy. Equip TA teams to convey this value proposition trustworthy and consistently.

4. Digital Presence and Employer Brand - Your website and social media channels are key platforms to demonstrate your commitment to fair pay. Share stories on internal pay equality, link to career progression and employee experiences to show that fairness is more than a promise—it’s a lived practice.

By integrating these four elements, the company can create a candidate experience grounded in fairness, transparency, and purpose — essential drivers of engagement, trust, and long-term relationships.

By Morten Broekner, Executive Reward Advisor, The Reward Firm

References:

1] 4 in 10 Job Candidates Would Lose Interest in a Job That Doesn’t List a Salary Range, SHRM, July 26, 2024

    This Is Why You Should Include Salary Ranges in Your Job Posts, LinkedIn, February 13, 2023

  Gartner HR Survey Finds Within 12-Month Period, Half of Candidates Have Accepted a Job Offer – and Then Backed Out Before Starting, Gartner, August 23, 2023

2] “EU Pay Transparency Directive: which countries have implemented?”, Ius Laboris, 18. July 2025

3] 2025 Compensation Best Practices Report, PayScale, 2025

4] “Today Novo Nordisk launched yet another stage of the pay transparency rocket”. Keld Nielsen, Keld Nielsen, Sr Director Total Rewards Europe & Canada, LinkedIn

5] Generations (MS CoPilot):

1. Silent Generation (born 1928-1945).

- Key Traits: Known for their discipline, respect for authority, and strong work ethic.

- Historical Context: Grew up during the Great Depression and World War II, which shaped their values of frugality and resilience.

2. Baby Boomers (born 1946-1964):

- Key Traits: Often characterized by their optimism, competitiveness, and strong work ethic.

- Historical Context: Experienced post-World War II economic growth, the civil rights movement, and the Vietnam War.

3. Generation X (born 1965-1980):

- Key Traits: Known for their independence, resourcefulness, and skepticism.

- Historical Context: Grew up during a time of shifting societal values, economic uncertainty, and the rise of technology.

4. Millennials (born 1981-1996):

- Key Traits: Often described as tech-savvy, value-driven, and team-oriented.

- Historical Context: Came of age during the internet boom, 9/11, and the Great Recession.

5. Generation Z (born 1997-2012)

- Key Traits: Known for being digital natives, socially conscious, and entrepreneurial.

- Historical Context: Grew up with smartphones, social media, and significant global events like climate change awareness.

6. Generation Alpha (born 2013-present)

- Key Traits: Still emerging, but expected to be highly connected, tech-dependent, and diverse.

- Historical Context: Growing up in a world dominated by technology and rapid change.

Each generation has been shaped by the unique events and cultural shifts of their formative years, influencing their values, behaviors, and perspectives.

Background Readings:

* “Fair Pay to Heaven” – or “High Pay to Hell” – by Morten Broekner, Executive Reward Advisor, The Reward Firm

** The 4 Disciplines of Execution: Achieving Your Wildly Important Goals, Free Press, 2012

*** https://www.cipd.org, Employee engagement: definitions, measures and outcomes, 2021