Best practices around compensation cycles

Comp Cycles
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Structuring compensation increase cycles are a great way to prioritize impact on retention, and you may be wondering how to leverage these cycles to boost recognition and pay equity?

Let's review the best practices when it comes to managing these cycles and push a consistent, explainable process that motivates employee growth.

Compensation Cycle Best Practices

#1: Set clear eligibility criteria

Make sure to determine how employees are eligible for an increase within a compensation review. A few common eligibility criteria are based on:

  • employee contract type, hire date
  • position within pay range (i.e. how to consider employees above pay range)
  • location or department

#2: Share rewards policy with the leadership team

Your compensation cycle is one of the means to reflect your company’s culture and vision towards retention. Thus, it is always relevant to involve the leadership team to get their feedbacks on how to support the right behavior during their compensation discussions (even outside of reviews).

#3: Align on budget

Share with the finance department your objectives and budget hypothesis for the upcoming compensation cycle, so the company is align on the right budget pools: % of salary or total package? Specific budgets for promotion or special cases? Based on all employees or only the eligible ones?

#4: Refresh your pay ranges

Based on latest changes within the company and externally, review and update your compensation ranges to reflect the right situation for your analysis and to guide managers during the exercice.

#5: Review current state of internal pay equity

While a compensation cycle aims at recognizing performers, it is also a means to educate on pay equity and reduce gaps.

Identify gaps within your peer groups and review the employees below / above range. Review the reasons as some of them could be legitimate, however if they are not justified, make sure to correct them during the cycle (specific budget pool, recommendations).

#6: Prepare timeline and communication plan ahead of the cycle

Prepare the main milestones for the compensation cycle and share them with your managers and employees accordingly. Employees would have a better understanding of what to expect in terms of decision-process and managers would be aware to discuss the right items during their decision.

Also, train manager before the beginning of cycle and before final cycle results on how to talk about compensation, the overall process and how to value each decision. It could be easily overlooked, but doing this allow employees to feel appreciated and recognized.

#7 Allow time to review performance ratings

It is likely that your compensation policy is tied to performance criteria and thus, time is allocated to determine these ratings. Having some additional time to review the company’s performance curve and compare how similar/different each manager is rating their team allows to check for biaises and recalibrate if necessary.

Streamline compensation cycles across the company

Managing compensation cycles through spreadsheets could easily lead to bias and errors during the process. Instead, unify your compensation processes with a compensation platform that safeguards accurate decisions and helps managers navigate rewards discussions.