Your CFO Just Handed You the Budget for Compensation Rounds—Now What?

So, your CFO just gave you the green light on the budget for your upcoming compensation round. Awesome!

But, now comes the big question: how do you make sure everyone feels it's fair and transparent while hitting the goal of recognizing and keeping your top talent?

Let's break down some different ways you can create a company compensation framework and distribute that budget effectively. Remember, at the end of the day, it's up to your organisation to decide how they compensate, but even more important to communicate it clearly.

Merit-Based Increases

• Performance Reviews: You can use performance reviews (whether they're annual or bi-annual) as a basis for deciding who gets what.
• Achievement of Goals: Link raises to specific goals, whether they're personal, team-based, or company-wide.
• Performance Tiers: Create clear performance tiers (like "exceeds expectations," "meets expectations," and "below expectations") and spread the budget based on those.

Market-Based Adjustments

• Market Data Analysis: Look at market salary data to ensure your pay rates are competitive
• Benchmarking: Compare your salaries with industry standards and make necessary adjustments.
• Geographic Adjustments: Adjust pay based on the cost of living in different locations.

Check out all the compensation and salary benchmarking products in Stakkd HR tech database under "Compensation".

Equity Adjustments

• Internal Equity: Make sure everyone in similar roles gets fair pay to avoid any internal disparities.
• Experience and Tenure: Factor in how long someone’s been with you and their experience level when doling out the budget.
• Job Role Comparisons: Compare similar roles and make sure the pay is balanced.

Retention and Incentive-Based Increases

• Retention Bonuses: Offer bonuses or pay bumps to keep your key players around.
• Incentive Plans: Create plans that tie bonuses to company performance or personal milestones.
• Retention Pools: Set aside part of your budget just for high-performing or high-potential employees.

Skill-Based Increases

• Skills and Competencies: Reward folks for picking up new skills or certifications that benefit the company.
• Role-Specific Skills: Focus on critical skills for specific roles and compensate accordingly.
• Professional Development: Link raises to participation in professional development programs or certifications.

Cost of Living Adjustments (COLA)

• Inflation Adjustments: Adjust salaries based on inflation to keep up with rising costs.
• Local Economic Conditions: Consider the economic conditions in different locations where your company operates.

Discretionary Increases

• Managerial Discretion: Let managers have some say in how the budget is spread based on their judgment of employee contributions.
• Special Contributions: Recognize employees who go above and beyond with special raises or bonuses.

Broad-Based Increases

• Across-the-Board Raises: Everyone gets a uniform percentage increase.
• Flat Rate Increases: Give everyone the same fixed amount increase, regardless of their current salary.

Performance vs. Potential

• High Performers: Focus on rewarding your current top performers.
• High Potential: Allocate some budget to those employees who show great potential for future growth.

Hybrid Approach

• Combination of Methods: Mix and match the above methods to find a balanced approach.
• Customization: Tailor your approach to fit your organization's unique culture and needs.

In the end, there’s no one-size-fits-all approach. It’s all about finding what works best for your organization’s culture and goals, and getting buy-in from the right stakeholders before you start your compensation rounds - so when your CFO asks how the budget will be managed, you are both on the same page.

If you’re looking for more insights into HR tech tools that can help you execute your compensation program and reviews, check out the Stakkd HR tech database.

Remember, how you handle your compensation round can have a big impact on your team's morale and retention. So, take a thoughtful approach and make sure your team feels valued and fairly compensated.

Good luck with your compensation round! It’s a big task, but with the right strategy, you’ll keep your team happy and motivated.