4 Steps to a Smoother Compensation Review
Compensation Fundamentals

4 Steps to a Smoother Compensation Review

Time of posting an article for Barley Compensation Management Software
July 11, 2023
Reading time for Barley Compensation Management Software
5 min read

Once your team has finished a compensation planning process, you might expect them to feel excited, proud, and satisfied. 

But most of the time, they feel burnt out. In fact, many never want to go through compensation planning again.

The reason? The administrative burden to run a high-quality compensation planning process is incredibly steep. Managing dozens—or sometimes hundreds—of spreadsheets, disseminating sensitive data, checking budgets, ensuring guidelines are followed, and manually creating individual increase and promotion letters is more than most teams can handle (in addition to their regular duties). 

Plus, the more factors that influence your merit review, the tougher it becomes to oversee. In an ideal world, your salary reviews will be influenced by performance, position in pay bands, and market shifts. However, while these factors make increases more meaningful and equitable, they increase complexity for everyone involved.

So how do you create a rewarding compensation planning process that doesn’t overburden your team? In this piece, we explore four key areas where companies get slowed down and offer time-saving tips for streamlining each one.

1. Setting Compensation Planning Goals and Criteria

Knowing the goals of your compensation review will speed up decision-making. And when your review process aligns with your overall compensation philosophy, it’ll be easier (and faster) to communicate to management and employees. 

To prevent headaches later, make sure your leadership team and those who are directing the review process—like HR, finance, and/or compensation teams—have answered the following questions:

Q1. What’s our goal? It could be creating more pay equity, rewarding top performers, retaining employees, or a combination of a few of these. Whatever it is, it should align with your compensation philosophy so it’s easy for employees, managers, leadership, and those running the process to get (and stay) on board.

Q2. Who’s included in this cycle? Deciding who is eligible for a review cycle is often based on start dates or the last time they had a salary increase or promotion. This should be communicated clearly from the outset. Pulling the numbers from your HRIS system based on your criteria will give you a sense of how much effort will be needed to complete the cycle.

Example: Pull data from HRIS and select eligible employees

Q3. What factors will influence comp increases? This could be performance ratings, position in pay band (e.g. compa-ratio), market adjustments, and more. (Your goals should drive these choices.) The more factors you have, the more difficult calculations and explanations become. However, including more influences gives you greater flexibility in rewarding and retaining employees.

Q4. How much autonomy will managers have in the process? Allowing manager insights to guide salary increases helps tie employee performance to their pay. However, more power for managers also means more training, communication, and review time (to spot discrepancies) for your administering teams. It could also allow manager bias to influence increases. Having clear guidelines and resources to streamline the learning curve for managers will save your HR team effort later on.

Q5. What’s our ideal timeline to complete this cycle? Many comp reviews take months, depending on the number of managers and employees involved. Without a workback plan—and realistic expectations—the process can take longer than anticipated. With the right tools and milestones in place, a quality review cycle should be able to be completed in weeks—not months. 

2. Testing Budget Scenarios

Waiting until increases are submitted to see how much it will cost you can stall your process. If you’re over, you might have to adjust guidelines, revisit decisions with each manager, or have a lengthy battle with your leadership or finance teams.

To get ahead of fiscal road bumps, set a budget from the start. If you have a number in mind from the outset, you’re more likely to set up guidelines that will keep you near it. You can quickly calculate one by multiplying your total payroll by the percentage increase you expect to have. You can check industry research for average increases. (Payscale’s latest report shows 3-5% is a common range.)

Secondly, you need a quick way to test your scenarios before giving guidelines to managers. This means creating a calculation (usually in Excel or another spreadsheet tool) that includes your total salary data. This should then be multiplied by the factors you’re including in the comp review. For example, if your increases are based on performance, you should include the percentage increase for the performance ratings and how many employees you expect to fall within each category. (You’ll likely want help from a finance or data person for this.)

If you use compensation review software, you can pull real-time data from your HRIS and performance management systems to make more accurate budget predictions based on individual salary data and past performance (no pivot tables required!).  

Example: Projected spend on pay increases

Ideally, budgeting is a two-way conversation. If the budget feels too small or most scenarios aren’t meeting the mark, it’s best to have a conversation with finance about adding some wiggle room. If you can’t get a consensus, revisit your goals from the previous section.

3. Sharing Guidelines and Monitoring for Outliers

Getting manager recommendations for comp increases is one of the most time-consuming (and error-prone) parts of a review cycle. 

Often, you have to create an individual calculation for each employee based on several factors (current salary, performance, position in pay band, etc.). Once managers submit their suggestions, each one needs to be reviewed to make sure it’s not too high or low. Then, all approved reviews need to be collected, added up, and compared against the budget. And if there are overages, you’ll need to make adjustments.

This requires a lot of manual, time-consuming work with individual spreadsheets, complex formulas, and sensitive data. Here are a few ways your team can speed up this laborious work without introducing errors:

Decide what data to share with managers. You’ll need to control who has access to sensitive information (like pay band data, budgets, etc.) to avoid accidental over-shares, which can raise questions and take up your team’s time. You can use manual methods to disseminate information (1:1 emails or calls with managers) or set up security through file-sharing systems. Compensation review solutions can be configured to only show users relevant information based on their profile.

Provide managers with an increase/merit matrix. If performance or pay bands impact your review cycles, give managers an easy-to-use matrix that automatically calculates increases based on their inputs. (Learn how to build a matrix here.) These can be built manually in individual spreadsheets or presentation templates, or automatically generated through a compensation review platform. 

Example: Guideline Matrix

Have a mechanism for controlling or flagging outliers. No matter which method you choose, try to include a mechanism for spotting or controlling outliers. This could mean locking ranges in your spreadsheets or coding in warnings if managers are over guidelines. This will save your admin team time when reviewing manager recommendations. Compensation tools will automatically flag discrepancies in a report.

Example: Flagging outliers using compensation management software

4. Communicating Comp Review Outcomes

Even though you’re nearly at the finish line, there’s still one time-consuming task left before your HR team can breathe a sigh of relief: drafting comp increase letters for each employee.

To ease the strain, you can automatically fill in comp review letters using plugins that pull data about each employee from a spreadsheet (by using a tool like Mail Merge, for example). Make sure managers proofread letters before delivery to confirm they’re accurate.

If you’re using a compensation review solution, it will automatically generate and deliver letters based on approved amounts, saving administrators and managers time. (Note managers should still meet 1:1 with employees to discuss the increase.)

Finally, beyond the salary increase, make sure you’re using this time to communicate your employee's total rewards to them clearly and compellingly. This can be done by generating a total rewards statement using spreadsheets or leveraging your HR or compensation platform. Reminding employees of their total compensation, from long-term incentives (like stock options) to all of their perks and benefits, helps to recenter the conversation on the fact that their pay goes beyond the increase or promotion they just received. 

Example: Compensation Letter

Preparation + Technology = Faster, Smoother Compensation Planning Cycles

Shaving hours of manual labor off of your compensation planning process comes down to two key things: 1) the prep work you do before the review process begins and 2) the tools you use to automate parts of your cycle. 

When you get both right, your managers have the autonomy to move quickly, accurately, and consistently without overwhelming your HR, finance, or compensation teams—making the process better for everyone (employees included!).

If you’re ready to move on from the spreadsheets, pivot tables, broken formulas, data pulls, and budget woes, consider using compensation management software, like Barely.io. Get a demo to see how Barley can set up your next review cycle in minutes.

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