A rotary encoder assembly comprises an annular track comprising an alternating pattern of at least two different encoding regions; a first detector and a second detector each arranged to produce a respective alternating output signal as the track of encoding regions rotates about its axis past the detector, the combined values of the two output signals assuming a plurality of unique states with the states changing from one to another as the encoder rotates. A memory stores compensation values, each value being associated with a respective one of the possible state changes that can occur when the combined values of the two output signals change upon movement of the encoder track, and each indicative of an average error in the position at which the corresponding change of state occurs. A processing means in use generates a position signal that is updated when there is a change in the combined states of the output signals of the two detectors, the position signal being corrected by an amount indicated by the compensation value associated with the latest change in state.