An encoding device (1) and method convert a set of signals (l, r) into a dominant signal (m) containing most signal energy, a residual signal (s) containing a remainder of the signal energy, and signal parameters (IID, ICC) associated with the conversion. The dominant signal (m) and selected parts of the residual signal (s) are encoded. Selecting parts of the residual signal involves a residual signal (s′) passing perceptually relevant parts of the residual signal (s), attenuating perceptually less relevant parts of the residual signal and suppressing least relevant parts of the residual signal. An associated decoding device (2) and method decode the encoded dominant signal and the encoded residual signal so as to produce a decoded dominant signal (m′u) and a decoded residual signal (s′mod) respectively. A synthetic residual signal (s′syn) is derived from the decoded dominant signal (m′u) and is attenuated so as to produce an attenuated synthetic residual signal (s′syn,mod). The attenuated synthetic residual signal (s′syn,mod) and the decoded residual signal (s′mod) are combined to produce a reconstructed residual signal (s′). The decoded dominant signal (m′) and the reconstructed residual signal (s′) are then converted into a set of output signals (l′, r′).