How to Run a Compensation Round

You’ve just wrapped up your half-yearly or annual compensation round. Even though you thought you had everything under control this time, it still turned out to be a real energy-drainer.

Business leaders grumbled about the process.

Employees weren’t thrilled with their raises.

And worst of all, there were whispers about biased decisions and a possible gender pay gap.

You don’t even have a straightforward way to check that claim... Uh oh!

Let’s make sure you’re better prepared for the next round.

Here’s a guide on how to run a smooth and fair compensation round,

Key Data Points You Need

1. Job Level: Determines seniority and typical pay range.
2. Current Base Salary: Basic info to start with.
3. Current Variable Salary: Bonuses and other variables included.
4. Time Since Last Salary Increase: Has it been too long since their last raise?
5. Salary vs Benchmark Band: Are they within their target salary range?
6. Salary vs Market Midpoint: Quick comparison of their salary with market standards.
7. Time in Role: How long have they been in their current position?
8. Rate of Salary Change: How quickly have their salaries changed over time?
9. Gender Pay Gap/Demographic Pay Gap: Are there any disparities?
10. Employee Performance & Potential: Are they paid fairly for their contributions and potential?
11. Local Country Adjustment Factor: Make sure they’re benchmarked against the local market.

If you don't have these data points or your system doesn't capture them, think about looking at some HR tech to support this in the future in Stakkd's HR tech database.

Budget Distribution

There are lots of ways to distribute your budget (check out our previous blog post for details). Once you’ve got your baseline data and budget sorted, it’s time to get your Compensation Planners (all managers with a budget to allocate) up to speed.

Educating Your Compensation Planners

Make sure your managers understand:

• Compensation Philosophy: Explain your organization’s compensation strategy (e.g., paying at the market midpoint or the 80th percentile). Ensure they know that employees are “on average” paid at the target percentile.
• Prioritization: Should they prioritize topping up high performers’ salaries or closing the gender pay gap? Get backing from senior leaders for these choices, as they can be controversial.
• Deadlines and Accountability: Set clear deadlines and explain the checks and balances they’ll face.
• Communication Plan: Ensure there’s a clear plan for communicating decisions and receiving feedback.
• Performance-Based Awards: Emphasize that raises should be based on performance and hitting personal objectives.
• Philosophy on Pay: Clarify your stance on paying for performance versus seniority.
• Budget Creation: Explain how the budget was created and distributed among managers.
• Mathematical Optimization: Show them the most optimal way to distribute the budget according to the company’s compensation philosophy.

Preparing for Employee Questions

You you to be ready with Communication and be able to answer these topics:

• Inflation Adjustments: Have a consistent response ready for questions about inflation adjustments.
• Pay Transparency: Decide how open you want to be about pay. Remember, once you start, it’s hard to go back.
• Raise Justifications: Be prepared to explain why some raises were lower than expected.

Handling Complaints

Be ready to deal with:

• Budget Complaints: If managers complain about insufficient budgets, ensure your distribution method is objective and backed by your CFO and CEO.
• Unhappy Employees: Decide upfront how to handle employees who threaten to leave over their raises. Breaking the company-wide approach can lead to more complaints and requests.
• Performance Discrepancies: Ensure you have personal objectives and performance management in place to avoid subjective debates.

In Summary

Running a compensation round can be daunting. People often get cautious and aren’t transparent about the decisions made, usually because the Organisation hasn't actually agreed on how it wants to pay people and isn't transparent from the get go (don't recommend this).

It’s crucial to lead from the front, clearly explaining your pay philosophy, how much budget was available and how it was objectively distributed. If you don’t these frameworks in place, get those sorted before your next round. This empowers managers to make objective decisions that can be explained to employees, and in turn, your employee will thank you.

For more insights and tools to streamline your compensation rounds, check out the Stakkd HR tech database.

By following these steps and preparing thoroughly, you can make your next compensation round smoother, fairer, and a lot less stressful for everyone involved.