7 Steps to Conduct Successful Compensation Reviews

For most American employees, compensation is the most important deciding factor when it comes to working for a job. After all, it's what allows them to purchase their needs and wants and try to live better lives.

However, a recent survey reported that 54% of US workers are dissatisfied at work because they don’t earn enough money to pay their bills. This is where compensation reviews become crucial.

So, what is the compensation review process exactly? Why is it important for employees and businesses? And how do you conduct a successful compensation review? Let’s find out more in this guide.

What is the compensation review process?

The compensation review or salary review process is a formal evaluation of compensation packages received by a company’s workforce. It’s a complex procedure aiming to create a fair and competitive pay structure.

What makes a salary review complicated is its top-down approach where everyone, including the executives, management, and employees is involved in the process. The challenge here is to arrive at a conclusion that’s favorable and beneficial to the interests of all parties.

The labor market is getting increasingly competitive each day with every company crafting competitive packages to offer. Using the Compensation Planning Software, you can easily stay ahead of the curve to attract top talents by optimizing your company’s compensation packages through merit planning, incentive compensation, and long-term awards.

Why are compensation reviews important?

A company’s greatest asset is its employees. They are the foundation of sustainable success within a business, therefore, keeping them satisfied at work and boosting their morale are great strategies to retain top talents.

The best way to do this is by regularly conducting compensation reviews. This is also a good opportunity to reward the high performance and career growth of employees where businesses may decide to adjust the base salary, increase equity, or implement bonuses.

Nowadays, innovating your salary planning strategies is key to providing the right compensation for employees. Compensation management software can also help you seamlessly conduct compensation reviews with increased efficiency and streamlined collaboration with the team.

The pros and cons of compensation reviews

When done correctly, conducting a compensation review will yield positive results that can benefit both the company and its employees. However, executing it the wrong way without proper preparation could lead to undesirable consequences.

Pros

• Employee retention: Executing regular compensation reviews allows a company to stay updated with the current market trends and competition in offering compensation packages. This is an effective way to attract and retain top talents, knowing that they are well-compensated in the company.

• Performance alignment: Introducing proper compensation based on performance or productivity can incentivize employees to work harder and try to achieve the company’s goals.

• Career growth and development: When employees see that the company is willing to support their professional and financial growth, there’s a high chance for them to stay.

• Transparency and clear communication: Conducting a salary review is a great opportunity to promote clear communication and transparency to your workforce. Doing this can foster a healthy working relationship based on trust and support within the workplace.

• Employee motivation and engagement: Making your employees feel that their efforts are seen and valued will promote motivation, increase engagement, and overall uplift workplace morale.

Cons

• Tension and dissatisfaction: Oftentimes, discussions about compensation reviews can create tensions among colleagues especially involving pay differences, unclear communication, and unfair results.

• Unrealistic expectations: Employees may have unrealistic expectations of pay adjustments or salary increases so it often leads to disappointment when certain benchmarks aren’t met.

• Biased decisions: Poor preparations while conducting a salary review can lead to subjective performance reviews and therefore result in biased decisions. This may cause internal conflicts between the management and employees, which can escalate employee dissatisfaction.

• Huge administrative burden: Salary reviews can take a lot of time, effort, and resources to execute, especially for the human resources department.

Creating a compensation plan is indeed a daunting and complicated task for HR. But with the help of the Compensation Planning Software, you can effectively mitigate errors, increase efficiency, and streamline collaboration within the team for better success.

How to conduct a successful compensation review: 7 steps

Now that you already understand the importance, advantages, and disadvantages of compensation reviews, it’s time to ensure that your company does it correctly. Here are seven steps on how to conduct a successful salary review:

1. Step 1: Define your company’s compensation philosophy

   Before anything else, the most important thing to do is define your company’s compensation philosophy. It is a formal statement establishing a company’s position towards employee compensation.

   This serves as the solid foundation of how and why your company conducts a compensation review given the existing rules and policies already in place.

2. Step 2: Establish clear objectives and criteria

   Applying salary and incentive adjustments to the current compensation package is the main highlight of salary reviews. However, it’s also important to always establish the objectives and criteria where these adjustments are based, especially during the early stages.

   Market data and performance ratings are some of the big common factors during these reviews. Unfortunately, these metrics may vary from one company to another, usually causing internal conflicts and bias as the process unfolds.

3. Step 3: Analyze the existing compensation structure

   Conduct a thorough review of the company’s existing compensation structure. Make sure to identify areas and sections where certain improvements can be made to ensure fairness, equity, and market competitiveness in employee compensation.

4. Step 4: Execute the compensation review

   Conducting a compensation review requires a lot of planning, execution, and revisions until you arrive at the most optimum decision that benefits both the company and its employees.

   Utilizing the Compensation Planning Software helps companies expedite the review process through total compensation planning which easily manages merit raises, bonuses, commissions, and equity.

5. Step 5: Determine and approve compensation adjustments

   After a thorough compensation review, this is the time to determine and approve compensation adjustments. Make sure to inspect which departments and teams will benefit from the changes while still maintaining the budget.

6. Step 6: Communicate results with employees

   See to it that every detail of the review results is communicated clearly with your employees as this promotes the foundation of transparency and trust in the workplace.

   Moreover, you should also consider listening to the pulse and opinions of the employees about the results. Are the adjustments favorable or disappointing for them? Make sure to find out.

7. Step 7: Ensure proper documentation of results

   Since salary reviews are regularly conducted within companies, it’s helpful to always ensure proper documentation of the results. This allows companies to easily track and refer to the existing compensation policies for the future.

Compensation review template: Example

To conduct a successful review, it's also helpful to gather input through employee performance reviews showcasing the overall performance ratings of the workforce. This also ensures fair and competitive compensation throughout the process. Below is an example of a compensation review template that you can use:

Remember that the main objectives of conducting compensation reviews are to ensure employee satisfaction through competitive employee compensation and pay equity. All while still adhering to the company’s goals and success.

With proper preparation and execution, it is possible to yield positive results from these reviews. Keep in mind that employees are the driving motor of any company, making them feel valued and motivated is a great investment that eventually brings success.