HR’s Guide To Mastering The Compensation Review Process
Managing compensation can feel like juggling flaming swords while riding a unicycle, but it doesn't have to be that complicated. The compensation review process is crucial for businesses of all sizes, ensuring competitive and fair pay structures that keep employees happy and retained.
Recent research shows that 77% of employees say that pay equity is a “very important” issue to them when assessing an employer.
In this article, we’re going to break down how to execute a compensation review process and ensure that fair pay isn’t an issue in the eyes of your people.
What Is The Compensation Review Process?
A compensation review process involves evaluating and adjusting employee pay within an organization. This may start with a pay equity audit.
The process includes assessing salary structures, conducting salary reviews, and implementing changes based on factors like market conditions, employee performance, and your overall payroll budget.
It ensures salaries remain competitive, fair, and aligned with the company's strategic goals.
When To Review Compensation
There are a number of factors that could trigger the need for a compensation review. This includes things like:
- Market Changes: Shifts in industry salary standards or economic conditions.
- Employee Performance: Recognizing high performers or addressing pay disparities among staff.
- Budget Adjustments: Organizational budget changes require realignment of compensation structures.
- Regulatory Compliance: New labor laws or regulations impacting pay practices.
- Strategic Goals: Alignment with evolving company objectives or restructuring.
- Retention Issues: High turnover rates indicate potential pay dissatisfaction.
- Merger or Acquisition: Ensuring equitable pay structures post-merger is vital to maintaining culture and employee satisfaction.
Key Steps In The Compensation Review Process
A compensation review process can essentially be broken down into four steps.
Step 1 - Gathering Data
First things first, you need data. Think of this step as gathering ingredients before cooking a gourmet meal.
You'll need to collate salary surveys, market trends, and internal payroll data. Tools like PayScale and reports from certifying bodies or third party analysts can also be invaluable here.
The most common data source comes in the form of compensation surveys. According to the Society for Human Resource Management (SHRM), 85% of companies use multiple surveys when analyzing compensation data. Beyond surveys, a review process can integrate data from any of the following:
- Government data from the Bureau of Labor Statistics or Statistics Canada
- Recruiters
- Job postings
- Proxy filings for executives and directors in public companies.
Analyzing Compensation Data
Next, it's time to play detective and analyze the data to spot discrepancies and trends.
Benchmarking against industry standards is key. I once worked with a company that was unable to hold on to the best members of its engineering team. The turnover was problematic as it regularly hindered the company’s ability to execute key projects.
After an analysis, they discovered they were underpaying their engineers by 20% compared to the market. Adjusting their pay not only boosted morale but also stopped the exodus of their best talent. Sometimes the answer to your retention headaches is that simple.
For HR, the purpose of compensation management should be to ensure competitive and fair compensation packages between employees and within your industry.
Setting Compensation Policies
If you don’t have some clear compensation policies that are part of a broader compensation philosophy in place already, a good time to set them is during a compensation review process.
Transparency and consistency are your best friends here. Look at Google or Microsoft for inspiration—they're known for their stellar compensation practices. Policies should be clear, fair, and easy to understand. This way, everyone knows what to expect and why.
Communicating Changes
Communication is crucial. You can’t just drop a new pay structure on your employees and expect them to understand. Be clear and empathetic.
There's a variety of ways you can do this, but here are three steps that simply can't be skipped and a snippet of what those communications might sound like.
- Email Update: “We’ve reviewed our pay structures to ensure fairness and competitiveness. Here’s what’s changing and why.”
- Team Meeting: “Let’s discuss the new compensation policies and address any questions you might have.”
- One-on-One Meetings: “Here’s how the new pay structure affects you and what it means for your future growth.”
Benefits Of A Structured Compensation Review Process
The perks of a comp review process are plenty! You’ll see increased employee satisfaction, higher retention rates, improved performance and a better ability to attract top talent.
It also benefits the work your people are doing in a few important ways.
- Employees: Receive fair and competitive compensation, leading to higher morale and job satisfaction.
- Management: Gains a clearer understanding of compensation trends and can make informed decisions regarding salary adjustments.
- HR Department: Can address pay disparities and compliance issues, ensuring fair and equitable pay practices.
The process will yield some key actions for you to take, including making adjustments to salary ranges and benefits plans, updating policies, and communicating with employees to maintain transparency.
Common Challenges And How To Overcome Them
The compensation review processes involves a deep assessment of your pay practices as an employer, which can uncover some trends or challenges that your organization has to address to get to where it wants to be on compensation.
Managing Bias
Bias can creep into the compensation review process just like it can the performance review process.
To mitigate this, implement training programs and use performance review tools that help identify and reduce bias. It’s like giving your process a pair of X-ray glasses to see through unfair practices.
Keeping Up with Market Trends
The market is always changing. Here are three current trends impacting compensation reviews:
Remote Work Compensation
With remote work on the rise, companies are rethinking location-based pay scales. Some are paying remote employees based on the local market rates, while others stick to headquarters rates.
Skills-Based Pay
Skills-based pay is gaining traction. Instead of paying based solely on job titles, companies are rewarding specific skills and competencies as well as a person’s overall potential to impact the business.
Pay Transparency
More companies are embracing pay transparency, sharing salary ranges openly to foster trust and fairness.
Emphasis on Total Rewards
Companies are expanding compensation reviews to include benefits, perks, incentives, and well-being programs, considering total rewards rather than just salary.
Tools for the Compensation Review Process
To effectively conduct a compensation review process, you’ll need to take advantage of modern technology solutions that can help you with benchmarking, assessment and sustainable salary growth that is tied to performance.
We’ve taken a long look at the solutions on the market and have developed our list of favorites.
Key Takeaway
If there's one thing I hope you take away from this article, it's this: the compensation review process is vital for maintaining a fair and competitive pay structure.
Regularly review and update your practices to keep up with market trends and ensure compliance. A thorough and fair process isn’t just good for employees—it’s great for business.
FAQs
Q: What are the main steps involved in the compensation review process?
The process includes gathering data, analyzing the data, setting compensation policies, and communicating changes to employees.
Q: How can I ensure my compensation review process is free from bias?
Implement training programs and use bias detection tools and techniques to identify and mitigate unfair practices.
Q: What tools can help streamline the compensation review process?
You can always look at websites like PayScale or Salary.com, but if you want a deeper understanding of compensation for a specific role and what’s driving it, you’ll probably want to invest in a payroll or compensation management solution. Tools like can assist with data collection, analysis, and maintaining up-to-date salary ranges include platforms like Deel, Lattice or Trinet.
Want to keep learning about compensation review processes and how to ensure your pay structures are equitable and competitive? Consider joining the People Managing People Community. There you’ll find a group of like minded people leaders facing the same challenges as you and creating innovative solutions everyday!
