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How to Execute a Strategic and Efficient Compensation Cycle

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How to Build Your Compensation Cycle Timeline Like a Pro

Jen Dewar
Nov 12, 2020 2:21:34 PM

Compensation cycles have a lot of moving parts, and always seem to take longer than you expect. But when you have employees who are eagerly anticipating pay increases, you kick into high gear to get things done. This often equates to late nights—and a lot of coffee.

Run a better compensation cycle in 2021 with some additional planning and foresight. A comprehensive compensation cycle timeline can help.

What to include in your compensation cycle timeline

Every organization’s timeline will differ, based on things like the size of the organization, the number of stakeholders, and whether you’re utilizing the right tools. Here are some activities you may want to incorporate into your compensation cycle timeline:

  • Call a post-mortem meeting: Get together with key stakeholders to review your last compensation cycle, and make adjustments to the steps and timeline as needed. If approvals were late, for instance, perhaps stakeholders needed more time to collaborate, make their own adjustments, and provide approvals.
  • Evaluate and implement software: Re-evaluate your HR technology stack so you can run a more efficient and strategic compensation cycle. You may be able to build a significantly more streamlined process with performance management software and compensation management software. Just be sure to leave time to onboard your organization and train users.
  • Define and assign roles: Determine who will view, edit, and approve compensation adjustments, and for whom. For instance, direct/line managers might see limited data for their own reports, while directors and vice presidents may have access to their entire teams. HR, Compliance, and Finance are generally able to access the entire compensation cycle and make decisions.
  • Update salary bands: It’s a good idea to revisit your salary bands once or twice a year to ensure they still align with your compensation strategy. This is particularly important when competition for talent is high, which can drive salaries up faster, but may also include a cost-of-living adjustment.
  • Run a compensation analysis: Run an analysis to discover how employee salaries compare to your updated salary bands, and to one another. This will identify where strategic adjustments should be made.
  • Request budget: Bring the results of your compensation analysis to your finance team to discuss a reasonable budget that will accomodate strategic adjustments and merit-based raises.
  • Allocate the budget: Once the budget is finalized from Finance, determine what you will allocate to strategic adjustments, merit-based raises, and executive hold-backs. It’s generally a good idea to hold back 5-10 percent for executives to make additional targeted and discretionary adjustments at the end.
  • Get buy-in: Run your plan by your stakeholders and get their buy-in for roles, timelines, and budget.
  • Provide training: Sync with stakeholders to ensure they’re familiar with your process and software. Managers, in particular, can benefit from training around pay equity and raise cycle communication expectations. A video walk-through, in addition to written documentation, can give stakeholders something to reference later.
  • Conduct performance reviews: Ensure plenty of time to complete performance reviews if they are part of your compensation cycle. These can be time consuming for managers, and may be delayed for any number of reasons.
  • Set approval deadlines: Set approval deadlines for each individual stakeholder, buffering in time for late approvals and post-approval changes. Remember to give your team time to review recommendations for targets and pay equity, and make appropriate adjustments.
  • Employee communication: Employees should understand what they earn, why they’re compensated that way, and when changes take effect. A compensation statement can help with this.
  • Second cycle: If you run a second, smaller, cycle in Q3 to make pay equity adjustments or provide raises to employees who weren’t eligible in Q1, add a timeline for that as well.

A sample compensation cycle timeline

Smaller companies may be able to book a conference room (or a day-long Zoom) for the day and knock out a raise cycle fairly quickly. Larger organizations, however, may need several weeks or months to plan and run their compensation cycles. You should also account for holiday schedules, vacation plans, and other initiatives as you plan out your timeline. Here’s a sample timeline to help you start thinking about your own:

Year-round: Evaluate performance management and compensation management software

April 1: Compensation cycle post-mortem [the best time to do this is immediately after you run a compensation cycle, but it’s never too late to consider improvements on your process]

November 13: Define and assign roles

November 20: Update salary bands

November 25: Run a compensation analysis

November 25: Request budget from finance

December 4: Get final budget from finance

December 11: Allocate the budget

December 14: Get buy-in

January 4: Provide training

January 22: Conduct performance reviews

January 22: HR strategic adjustments

January 28: Direct/Line manager merit-based adjustments

February 4: HR or compliance adjustments

February 11: Director-level approvals

February 18: VP-level approvals

March 4: Finance approves; sends to Payroll

March 4: Share results with employees

March 15: New compensation becomes effective

Final thoughts on building a compensation cycle timeline

Compensation cycles can be stressful, but a little foresight and planning can go a long way in creating a smoother process for everyone. Planning your timeline, and getting buy-in from key stakeholders, can help you keep everyone on track and accountable for their deliverables.

Investing time now in evaluating and implementing compensation management software can ensure a more efficient cycle that saves valuable time for your stakeholders. With the right tools, your compensation analysis will be completed faster. Approvals will be faster and easier to audit and won’t get mucked up by poor spreadsheet version control. Exports to payroll will make for seamless updates. And compensation letters will be easier to administer and share with employees. Each of these improvements in efficiency can compress your timeline significantly and ensure pay increases are right on schedule.

See how Varo ran a compensation cycle in two weeks with Compaas.

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