Compensation Management – A Plan for All Seasons
- By: Tom McKeown
- October 26, 2015
Guest Post by Peyton Liu of Curo Compensation
“Compensation Management” refers to the process of planning, budgeting, allocating and administering your employees’ compensation. Like the changing seasons, each quarter brings a different, but connected phase for the compensation professional to embrace. Timing is extremely important during the compensation management process, as completion of quarterly tasks builds into the successful recurring plan.
First Quarter – Updating and Planning
Usually Q1 for compensation professionals is the season of updating and planning. Last years’ plan has been launched and the team must check and finalize all the new increases, update the salary bands/grades, as well as the salary structures. All this information will have been updated in their HRIS or their spreadsheets, which is too often the case. But once all of this is accomplished, the real work begins for compensation and benefit professionals as they move into the “survey” season.
Second Quarter – The Compensation Survey
The survey season is really where the current compensation planning year begins. This is when compensation & benefits (C&B) professionals will start reaching out to “Compensation Survey” vendors to help categorize their current employee base. In order for the team to get accurate surveys a lot of leg work needs to be done. They will need to first review current job descriptions, job evaluation results, and the job matrix. Then they must collect the most updated compensation and benefits data, benchmark the jobs with survey vendors, and finally submit the compensation data sheet to the survey vendor(s). In many ways the gathering of this data is the most important part of the process as all following steps will build off of the survey.
Third Quarter – Strategy and Structure
Survey vendors will usually release their compensation survey results and findings in Q3. For companies on a calendar fiscal year, this season is typically summer. The company will receive the most updated compensation data, prevalence compensation, benefits practices and policies from the market. The C&B professionals at this point will use the survey data to check and adjust employees’ compensation where necessary. It is here that the company must formulate its compensation strategy:
- Lead the market
- Match the market
- Lag the market
- Combination of the above
No matter which strategy your company may use, the bottom line is the strategy needs to be finalized before any further salary or bonus recommendations have been made.
Once the pay strategy is finalized and you have received the most updated compensation data, it is then time to design or refresh the company’s salary structure as well as the budget. For example, if your company choses an aggressive strategy in order to retain key talent, the salary merit increase rate might be 3% next year versus the market increase rate of 2%.
Fourth Quarter – Review, Sign-off, and Compensation Letters
The final season of compensation management is when the HR team begins finalizing the performance appraisal scores and new compensation budget. They then must get sign off from the executive team on the new plan and allocation strategy, which could be based on departments or on individuals. At that point the C&B professionals will interact with the line managers in order to confirm the appraisal scores and get their salary and bonus recommendations for their direct reports. As there are so many people involved in this stage, it is important for the team to be extremely cautious and diligent. One of the most common and costly problems here is “over-spend”. This is where using a compensation management solution with dynamic budget updating, can easily pay for itself by replacing a manual spreadsheet solution.
At the end of the year, employees will want to know exactly how much their salary increases be. This brings up another challenge for C&B professionals. Compensation letters require a lot of detailed information particular to each employee – from base salary, allowances, short term incentives to long incentives, benefit items, etc. Again, if you do not have a compensation management solution in place to manage this process, most likely, you will end up working over-time to try to complete this.
As Fred Whittlesey, the principal from Compensation and Performance Management, once said, “Compensation must be done on time and without any errors.” Anyone who as ever received a paycheck can hardly disagree.