Conducting a successful compensation review.
- Step 1. State your goals and philosophy.
- Step 2. Gather data.
- Step 3. Analyze the data.
- Step 4. Develop your compensation strategy.
- Step 5. Implement and monitor the strategy.
Employers are having a hard time keeping workers, especially with the current competitive job market. In 2022, over 50 million Americans took part in “the Great Resignation,” a trend where many quit their jobs on their own. A survey found that this happened because workers felt disrespected, lacked opportunities for advancement, and were paid too little.
To prevent this problem, companies should improve their compensation strategies to keep their best employees. One solution is to conduct a compensation review, evaluating employees based on their performance and market rates. This ensures fair and competitive pay in the company.
The question is: how can you conduct a comp review that truly benefits the entire organization? Learn all you need to know about compensation reviews in this article. We'll also share some handy tips for the comp review process.
But first: what are compensation reviews?
What is a compensation review?
A compensation review is a formal process where companies assess and adjust employee pay and benefits to ensure fairness and competitiveness compared to both internal and external standards.
The main goal of a comp review is to make sure that employee pay is fair, competitive in the industry and market, and fits with the organization's goals and budget.
Why is compensation review important?
Here are some important reasons why compensation reviews matter for organizations:
Attract and retain top talent
Good pay and benefits attract and retain top employees. Regular comp reviews help companies stay updated on market rates, so they can adjust their offerings to attract new hires and keep current employees from leaving for better opportunities.
Promote fairness and equity
Regular compensation reviews identify and correct any unfair pay gaps based on factors like gender, race, or experience. This promotes fairness, reduces dissatisfaction, and improves the workplace environment.
Motivate and engage employees
Employees are motivated when they feel appreciated and fairly compensated. When they believe their pay reflects their performance, they strive for better results, ultimately benefiting the organization.
Make informed talent decisions
Data from compensation reviews provides valuable insights into employee performance, potential, and market trends. This helps in making informed decisions about promotions, training, and development, allowing the company to invest in the best talent for future growth.
Stay compliant with regulations
In certain places and industries, regulations regarding pay fairness and transparency may require companies to conduct regular salary reviews. These comp reviews help ensure compliance with the law and reduce the risk of legal issues.
Align compensation with business goals
By understanding the job market and employee performance, companies can adjust their pay strategies to attract the right talent and achieve their goals. This ensures they hire and retain the right people to reach their targets.
Build trust and transparency
Open communication between employees and management about pay increases trust. When employees understand how their pay is determined and see fairness in the process, it creates a happier and more transparent workplace.
What is a compensation review cycle?
A compensation review cycle is when a company evaluates and adjusts its employee pay, including salary, bonuses, and benefits. This typically happens once or twice a year, but the frequency can vary based on the company's policies.
Here's what usually happens during a comp review cycle:
Planning and preparation. This stage sets up the salary review process. It includes deciding when to do the comp review, setting standards for assessing employee performance, and figuring out what factors will affect compensation changes. This stage might also include getting input from managers, HR staff, and employees to help with the salary review.
Review and evaluation. During this stage, the company assesses each employee's work performance and considers factors like productivity, work quality, teamwork, and adherence to company values. Feedback from supervisors and peers is considered, along with self-evaluations. The company also looks at market trends and budget constraints to decide on fair compensation adjustments.
Communication and implementation. After finishing the comp review, the organization tells employees the results. This means explaining any changes to their pay, like raises, bonuses, or different benefits. Clear communication is important here so employees understand why decisions were made and can ask questions. After sharing the decisions, the organization puts them into action to make sure employees get their updated pay as planned.
Components of compensation review
A compensation review involves important elements to ensure fair and competitive pay within an organization. Here are some key components:
Job analysis
This means assessing each job to understand its duties, skills needed, and qualifications required. Job analysis ensures jobs are correctly categorized and assigned suitable compensation.
Documenting
This step is about documenting the job analysis results, including job descriptions, key job duties, and needed qualifications. Clear documentation is important for fair and consistent compensation choices.
Assessing
After analyzing and documenting each job, the next step is to compare their importance in the organization. This comparison considers factors like how hard the job is, what skills it needs, how much demand there is for it, and fairness within the organization.
Job hierarchy
Creating a job hierarchy means arranging jobs based on factors like experience, responsibility, and who reports to whom. This clear hierarchy helps decide pay and keeps things fair for everyone in the organization.
Base pay structure
Creating a base pay structure means setting salary ranges for different job levels. This is based on factors like market trends, job evaluations, and fairness within the organization.
Challenges of conducting compensation review
Conducting a comp review can be challenging due to factors such as:
Balancing budget constraints with competitive pay
Organizations have limited budgets but need to offer competitive salaries. The best solution is to conduct market research, prioritize key positions, and offer non-monetary benefits to supplement lower salaries.
Ensuring pay equity across different roles and locations
Pay equity means fair pay for similar work, regardless of differences. To achieve this, companies should use a structured evaluation system, regularly review salaries, and utilize tools like Salary.com's Compensation Software to identify issues.
Aligning compensation with performance
Linking pay to performance motivates employees. Companies should set clear goals, provide feedback, and offer rewards to high performers.
Keeping up with changing laws and regulations
Laws about pay can change a lot, so organizations need to keep up. They should know local, state, and federal rules, work with legal or HR experts, and do regular audits to stay compliant.
Communicating compensation policies transparently to employees
Clear communication about pay builds trust with employees. Employers should explain pay policies and provide tools for understanding. Honest discussions about compensation concerns are essential.
How to conduct a successful compensation review
Conducting a successful compensation review involves balancing fairness, transparency, and motivation. Here's how to do it, with Salary.com's Compensation Software guiding you along the way:
- Step 1: State your goals and philosophy
Start by stating your goals for the comp review. This might include aligning pay with company goals, ensuring fairness, attracting talent, or motivating employees. Also, define the principles guiding your compensation strategy, like pay for performance or market competitiveness.
- Step 2: Gather data
Gather detailed data on current compensation, including salaries and benefits for different roles in the organization. This includes current pay rates, market comparisons, employee performance reviews, and feedback on compensation satisfaction.
The software merges external market pay data with internal company data for thorough pay practice reviews and internal pay equity assessments. Its Pay Equity Reporting feature helps you analyze internal pay differences by employee group and take corrective action.
You can also use the Job Range Wizard tool to compare internal pay ranges and actual employee salaries with updated market rates. This ensures that your pay practices stay fair and competitive.
Compensation Software also helps you stay competitive in the talent market by streamlining pricing and providing critical insights. It begins with matching your job titles and descriptions to the right market data for accurate pricing.
- Step 3: Analyze the data
After collecting data, analyze it to find differences, trends, or areas to improve. Look for patterns in pay across roles, departments, and demographics. Compare your organization's compensation to industry standards and competitors. Think about job complexity, experience, performance, and market demand when assessing pay levels.
With Compensation Software, you can confidently make compensation decisions using its data and insights. Easily create, edit, and share reports that analyze compensation across your organization.
- Step 4: Develop your compensation strategy
Using data insights and your goals, create a clear compensation plan. Define how you'll structure pay, including salaries, bonuses, incentives, and benefits. Address any disparities or issues found. Keep budget limits, company culture, and legal requirements in mind when designing the plan.
The software lets you create new salary structures and predict costs for changing structures or adjusting individual employee pay.
- Step 5: Implement and monitor the strategy
After finalizing your compensation plan, roll it out company-wide. Communicate changes openly to employees, explaining why decisions were made. Monitor how well the plan works, and regularly review and adjust it. Track metrics like employee satisfaction, retention, and recruitment to see how the plan affects the company. Keep reassessing and updating the plan to stay competitive and aligned with goals.
To ensure a successful compensation review in your organization, several factors must be considered. These include evaluating market rates, internal equity, transparency, and aligning compensation with organizational goals. By carefully considering these elements and using Salary.com's Compensation Software, your organization can conduct a comp review that enhances employee satisfaction and drives organizational success.
