A page has turned, and a new year is upon us. For those of us who are compensation professionals, chances are high that your annual compensation cycle is at your doorstep. Whether you’ve been preparing for it for months or you're still in the midst of planning and making critical decisions, there may still be time to pivot, plan and supplement your approach to add value and efficiency to your cycle. In this article from A&M Human Capital Today, we discuss a few approaches to improving processes.

Educate

Educating decision-makers on your organization’s compensation strategy, philosophy and guiding principles is one of the most impactful drivers of responsible compensation planning. This is also an opportunity to share with leaders any nuances or process changes for this year’s compensation cycle compared to those in the past. As we discussed in our August 2024 edition of Human Capital Today (How to Navigate Broad-Based Compensation in a Turbulent Economy: A 2024 Perspective), this step is all about clear communication, including making sure those involved are well-informed of your organization’s compensation philosophy and practices.

To the extent that compensation decisions are made deeply within the organization (e.g., managers and perhaps even supervisors are involved), your education efforts may require a significant amount of time from the HR team. However, it is in these cases that you have the opportunity to make the greatest impact, as a large number of leaders will be equipped to carry forward the compensation mission, both now and in the future.

As a final point on education, consider delivering your training session(s) with a trusted and respected business leader. By presenting compensation planning as an organizational priority (rather than an HR-led project), you can significantly increase the level of leader buy-in and engagement.

Job Aids

Job aids are tools or guides that provide simple instructions on how to complete a task or achieve a goal — in this case, making compensation decisions aligned with your organization’s compensation strategy. Putting pen to paper in the form of a job aid, or a set of job aids, can help decision-makers make compensation recommendations more efficiently and consistently. Consider capturing the following information in job aids to support the compensation planning process:

• Performance ratings – If your organization maintains a performance management system with defined ratings, have you clearly defined what those ratings mean, how to apply them and how they relate to compensation?
• Pay decisions – Offer clear advice to managers on what they should consider as they recommend salary adjustments, bonuses and long-term incentive awards, if applicable. What is each element of pay designed to do?
• Rules of the road/expectations – Consider publishing established pay rules and eligibility requirements so that all leaders are working from the same playbook. If there are guardrails or budgets that you’re asking leaders to stay within, be explicit about what those are.

Job aids can take many forms (e.g., microsites, videos, one-pagers, compensation guides, etc.) and cover a wide range of topics (not just those mentioned above). If your HR team hasn’t built a job aid library, don’t fret — our advice is to start small. Each step you take this year lays the groundwork for a more polished compensation cycle in future years.

Analytics

If your organization has access to analytics tools, consider leveraging them to help leaders make informed compensation decisions. There are various analytics tools/packages available, and some may integrate with your human resource information system (HRIS). If that’s not an option, your team may be able to run basic analytics within spreadsheets.

To fully capitalize on analytics in compensation decision-making, your HR team may need to involve internal or external partners. A good place to start is with your IT department. You may find that your organization already has licensed products that, with enough lead time, can be utilized for your compensation cycle.

To make the most of analytics, your team will need to decide what’s most important to present to leaders while avoiding information overload. The right approach will depend on your specific situation and the data that is readily available, including its quality. As a starting point, consider the following:

• How do current/recommended salaries relate to performance ratings and compa-ratios? Do the recommended adjustments make sense when you control for time in role, job level or other factors?
• What is the variability (i.e., standard deviation) observed within pay recommendations for each element of pay? Are there pockets of lower/higher variability? Does the level of variability align with the organization’s desired approach to compensation?
• How do employee salaries compare to each other across different labor markets (e.g., low vs. high cost of labor)?

Analytics can be run and presented before, during and after the compensation cycle. Pre-cycle analytics offer proactive insights. In-cycle analytics, which often require embedded technology and sophistication, provide leaders with real-time feedback on how their pay recommendations register against the analytics. Post-cycle analytics offer HR teams and leaders an opportunity to make any final adjustments necessary before implementing pay decisions.

Automate

Finally, consider investing in a compensation management solution or module to introduce automation into your compensation cycle process. This becomes increasingly important as an organization grows in size and/or chooses to involve more leaders in the compensation decision-making process. Most effective compensation management packages or modules accomplish the following:

1. They establish workflows that allow multiple layers of management to make, review and approve/reject compensation recommendations; and
2. They require compensation planners to make pay recommendations within established bounds/budgets.

Compensation management modules come in many shapes and sizes, varying in flexibility, cost and compatibility with HRIS platforms. Some exist as modules within an HRIS platform, while others are point solutions. Regardless, installing an effective compensation management solution requires planning and implementation efforts. However, it can pay off by expediting your compensation cycle, reducing the likelihood of errors and freeing up time for your HR team.

In Conclusion

Optimizing your compensation cycle requires a strategic blend of preparation, ongoing education and technology. By leveraging the points above, your organization can streamline processes, improve decision-making and drive greater efficiency. While each approach may require an investment of time and resources, the long-term benefits, such as enhanced leader engagement and more informed compensation decisions, are well worth the effort. With careful planning and the right tools, your compensation cycle can become a powerful driver of organizational success.