Adjustments in compensation structures in response to changing employment conditions

Adjustments to compensation structures: how to respond to changing employment conditions

The labor market is changing faster than ever. Scarcity, new legislation, and the demand for equal pay are forcing organizations to fundamentally revise their compensation structures. What worked for years is no longer sufficient. HR professionals face the challenge of creating a total package that not only meets new legal requirements but is also attractive enough to attract and retain talent. The question is no longer whether you need to adjust your compensation structure, but how to do so without frustrating your current employees or exceeding your budget.

Why compensation structures are under pressure

The traditional approach of a fixed salary with some standard secondary benefits is outdated. Employees expect more transparency about how their salary is determined and why a colleague with the same job title might be compensated differently. At the same time, legal developments are creating concrete deadlines. From January 1, 2026, new collective labor agreement regulations will take effect with equal compensation at the center. This means that temporary workers must be compensated equally to employees employed by the client from day one, including the valuation of relevant work experience. The minimum wage is also rising, which has a domino effect on your entire salary structure. If your bottom tier goes up, your middle segment must follow to keep proportions fair. Otherwise, you unintentionally create a demotivating situation where new employees earn almost as much as experienced colleagues.

From salary to total package

Successful organizations are shifting from a focus on gross monthly salary to a total picture where flexibility and transparency are leading. This total package consists of multiple components that together form the value proposition for employees. Think of variable compensation linked to performance, development budgets that employees can allocate themselves, flexible working hours, and work-from-home allowances that align with individual situations. Non-financial elements such as extra leave, a personal development track, or mentorship are also gaining increasing value in employees’ eyes. The advantage of this approach is that you create more room to deliver customization without it feeling like unequal treatment. Two employees with the same function can be compensated differently if it’s based on objective criteria such as work experience, performance, or specific expertise.

Different pay within the same function: is that allowed? one of the most frequently asked questions in HR: is it permitted to pay employees with the same function differently? the short answer is yes, but only if you apply objective criteria. relevant work experience is a legitimate reason for salary differences. someone who brings ten years of experience may earn more than a starter in the same role. performance, specific skills, or market scarcity can also justify differences. where it goes wrong is with arbitrariness or when applying criteria that are discriminatory. differences based on gender, age, or cultural background are naturally prohibited. but unclear criteria such as “negotiation talent” can also be problematic, as they often unconsciously encourage bias. transparency is your best friend here. if you can clearly explain why person A earns more than person B, and that explanation is based on objective, work-related criteria, you’re in a strong position legally and ethically.

The role of the works council in compensation systems

When adjusting your compensation structure, you’ll likely encounter the works council. The works council has legal consent rights for proposed changes to a compensation system. Note: this concerns the system, not individual salary adjustments. The difference is important. If you decide to introduce a variable compensation system where employees can earn bonuses based on team goals, that’s a system change that the works council must approve. If, on the other hand, you increase someone’s salary within the existing system due to good performance, that’s a primary employment condition over which the works council has no consent rights. In practice, the line is sometimes thin. A smart approach is to involve the works council early in your plans. Explain why adjustments are necessary, what problem you’re trying to solve, and how the new system is fairer or more transparent than the current one. If the works council understands that the change is in employees’ interests, you’ll gain support more quickly. Don’t forget that the works council can also be an important sparring partner. They hear what’s happening among employees and can signal where your compensation structure is causing friction.

New rules for 2026: what to watch for

The most important legislative change for 2026 is the new collective labor agreement regulation around equal compensation. If you work with temporary workers or flex workers, you must pay equal wages for equal work from day one, including allowances and the valuation of relevant work experience. This has far-reaching consequences for your workforce planning and cost structure. Where you previously might have had a cost advantage when deploying flex workers, that difference is now becoming smaller or disappearing entirely. For organizations that work extensively with phase B contracts, this means you need to reconsider your strategy. The financial incentive to work long-term with temporary workers is decreasing. At the same time, this can actually be an opportunity to offer permanent contracts more quickly to talent currently working as flex workers. The minimum wage increase also requires action. Check whether your current salary scales still make sense and whether the proportions between functions remain fair. Employees have a keen eye for internal equity. If a new colleague joins at a salary just below that of someone who has been with you for three years, you have a problem.

Harmonization during transfer of undertaking

During mergers, acquisitions, or reorganizations, the question often arises: can we harmonize employment conditions? The answer is nuanced. Strict rules apply during a transfer of undertaking. You cannot simply worsen employment conditions for transferred employees. Yet harmonization is possible, provided you proceed carefully and consult with unions or employee representation. A commonly used approach is creating a new, uniform compensation system where existing employees retain their current salary through a transitional arrangement. New employees enter the new system directly. Groups gradually grow toward each other, for example during periodic increases or function changes. Transparency is also crucial here. Employees accept changes more readily if they understand why harmonization is necessary and how the process is fair. Communicate clearly about the timeline, the criteria, and what it means for individual employees.

Implementation: from theory to practice

Adjusting your compensation structure requires a phased approach. Start with a thorough analysis of your current situation. Where are the pain points? Which functions are difficult to fill? Where are you experiencing unwanted turnover? Use data to recognize patterns. Deepler’s platform can help you gain insight into what employees truly value in their employment conditions. You might discover that flexibility weighs more heavily than a higher salary, or that development opportunities are a more important retention factor than you thought. Involve stakeholders early. Besides the works council, this includes line managers who will have to work with the new system. They must be able to explain why someone does or doesn’t qualify for a certain compensation. Train them in conducting salary adjustment conversations and give them tools to assess objectively. Test your new structure first in a pilot. Choose a department or function group where you try out the new system. Collect feedback, measure the impact on satisfaction and retention, and adjust where necessary. Only then do you roll out more broadly. Don’t forget communication. Employees must understand how the new system works, what it means for them, and how they can grow within the structure. Transparency about salary scales, criteria for increases, and development paths creates trust and reduces mutual comparisons.

The impact on engagement and retention

A well-thought-out compensation structure does more than just meet legal requirements. It directly influences how connected employees feel to your organization. Research shows time and again that fairness in compensation is one of the strongest predictors of employee engagement. Employees who feel they are fairly compensated are more productive, more loyal, and function as ambassadors for your organization. Conversely, an opaque or perceived unfair compensation structure can lead to quiet discontent that only becomes visible when valuable talent leaves. Exit interviews often reveal that salary wasn’t the main reason, but was the straw that broke the camel’s back. By adjusting your compensation structure to changing employment conditions and expectations, you invest in psychological safety. Employees dare to ask questions about their salary, understand how they can grow, and feel heard in their needs.

From compliance to competitive advantage

Too many organizations approach adjustments to compensation structures as a compliance exercise. You must comply with new legislation, so you adjust what’s necessary. That’s a missed opportunity. See it as a strategic choice that strengthens your competitive position in the labor market. If you respond faster and better to changing expectations than your competitors, you attract better talent and retain it longer. Use your compensation structure as part of your employer brand. Communicate externally that you compensate fairly, are transparent about growth opportunities, and offer flexibility in your total package. That makes you more attractive to candidates who don’t just look at salary, but at the total experience as an employee. Keep monitoring and adjusting. The labor market continues to change, new generations have different expectations, and economic circumstances fluctuate. What works now may already be outdated in two years. Make your compensation structure a living document that moves with your organization and the external context. By working data-driven, for example with tools that combine employee feedback and market data, you can proactively anticipate developments instead of reactively running behind the facts.