Preparing for an Effective Compensation Cycle

Have you ever thought about how companies and HR professionals decide on the best pay packages for their employees? The compensation planning cycle is the answer to that. Knowing how compensation works can come in handy when you are talking about your compensation and benefits at work.

In this article, you will learn the ins and outs of the compensation planning cycle and how it helps maintain a motivated workforce.

What is a Compensation Cycle?

A compensation cycle is a process to determine how much employees get paid. Here, companies check and compare what they pay their employees – such as salaries, bonuses, and overtime – to make sure it is fair and fits with what the company wants to achieve and what other companies are paying.

The main objective of a compensation cycle is to make sure employees are getting paid fairly for the work they do, considering their job roles, skills, performance, and experience. This is important because a lot of people leave their jobs when they are not paid enough. That is why most companies review their pay systems every six months to keep it fair and competitive.

When is the Best Time to Run Compensation Cycle?

Most companies decide on pay raises once or twice a year, usually when they are evaluating employee performance.

Here are reasons why companies must conduct pay reviews more often (up to twice a year):

• More Frequent Raises: Conducting pay reviews frequently results in more pay raises. Most companies prefer not to give pay raises outside of their regular schedule to maintain fairness and avoid constant pay negotiations. Regularly scheduled reviews help ensure that pay remains fair and competitive.
• Fairness for Newcomers: Someone who recently started working before the pay review must wait a long time for their first pay raise. Conducting reviews more often means they will not have to wait as long.

Despite these advantages, there are also reasons to not frequently conduct pay reviews:

• akes Up Time: Conducting pay reviews takes a lot of time for managers and the people who work on the business side. The time spent on this can be used to make the business better instead.
• More Work with Performance Reviews: Pay raises often depend on how well people perform in their jobs. Conducting pay reviews frequently means doing performance reviews as much, which takes up even more time.

To balance things out, some companies do pay reviews twice a year but look at different factors each time. For example, in June they may consider giving people more shares in the company, and in December they may think about changing their base pay or bonuses.The

Four Parts of Compensation Planning Cycle

The compensation planning cycle has four main parts. These are:

Step 1: Checking Outside Pay Rates

You need to see what other companies pay for similar jobs to create a competitive pay plan. Benchmarking helps ensure your compensation plan is fair and within the market rates. Conduct salary surveys and look at public info from other companies in your industry and area.

Step 2: Looking at Your Own Jobs

Assess how important each job is to your company and make a pay order. Think about job duties, skills needed, employee performance, and your company values. Jobs that are equally important must get similar pay.

Step 3: Making a Pay System

Use the info from internal and external sources to create pay grades, ranges, and rules that match your business goals. Consider differences in where people work and what kind of jobs they do. A good pay plan helps you pay people fairly and maintain your budget.

Step 4: Putting the Plan in Action

Put the new pay plan into action, inform managers and employees about it, and conduct an orientation or training. Make sure your pay plan is fair and helps your business do what it wants to do.

Doing these four steps in your compensation planning cycle helps you:

• Use valuable data to decide.
• Keep your best workers happy and working hard.
• Use your pay budget the best way you can.

Preparing for the Next Compensation Cycle

Review

When to do it: During your current compensation cycle and right after.

It is important to begin early! Start planning for the next cycle before the current one ends.  Keep track of any issues or problems you encounter during the process so you can fix them later. Gather feedback from different users to learn from past experiences.

Plan

When to do it: 4 to 5 months before the next compensation cycle.

After reviewing the last cycle, plan for the next one. Decide whether you need training on new features and whether your administrators need extra training too. Create checklists to make sure you do not miss any steps when getting ready for the next cycle.

Set Up

When to do it: 2 to 3 months before the next cycle.

Copy your template to be used in the next year and choose any new features you want to add. Make sure to update all your tables, formulas, statements, and permissions.

Test

When to do it: 2 to 3 months before the next cycle.

Get as many people as you can involved in the testing. It is important to do at least one full practice run before using the template for real.

Compensation cycles are important in making sure your team stays happy and motivated, and for your business to keep growing smoothly. These cycles help keep good people on your team and make sure everyone feels valued and engaged at work. When you run these cycles well, it will save you time and keep you away from stress, so you can focus on growing your business even more.