The holiday season may be kicking off, but if you work in HR and Reward, this time of year also means it's time to start getting ready for the compensation review season. In our recently hosted webinar, Ruth Thomas, Industry Principle and Co- Founder at our partner, Curo Compensation, shared some key tips to get you prepared.
Tip 1 – Too much focus on process not outputs
The compensation cycle has become an event-driven activity that, from a time management perspective, is all-consuming. In HR and reward we are often trapped in administrative activities, bogged down chasing spreadsheets, corralling data, identifying and dealing with exception populations and, as a result, are often too busy to fully contribute strategically and therefore miss the opportunity to add real business value.
Even from a process management perspective our approach can be lack luster; dusting off last year’s process, rather than considering what the key business imperatives are for the coming year, or working with complex processes that have evolved historically with workarounds which are often just temporary fixes that don’t address real compelling issues.
It’s important not to get bogged down in low value tasks, so make sure you take the opportunity to streamline processes or automate where possible to free you to focus on those high impact activities.
Tip 2 – Avoid a one-size-fits-all approach
As organizations become more complex and our employee base more diverse, it is increasingly apparent that a one-size-fits-all approach will not work for reward.
It is a delicate balance between maintaining a consistent approach to your reward philosophy whilst meeting the needs of different employees and jurisdictions. Your overarching reward philosophy needs to be strong, but allow for segmentation to meet varying employee needs - and this should extend to the compensation review itself.
With continuing constrained wage growth it is easy to fall into the trap of weak pay differentiation when allocating pay rewards – sometimes known as the 'peanut butter approach'. If you really want to optimize compensation spend, you need to move away from a bell curve approach that simply ends up allocating the majority of your pay budgets to average performers, and instead to one that recognizes your key talent.
Tip 3: What’s next after PRP
Another much talked about trend is abandoning the annual performance review cycle and ratings with a move to evaluating performance on a more regular basis with continuous, real-time feedback.
We’ve used performance ratings for so long now to drive compensation decisions, through our well established merit matrices. If you take the rating away what do you do?
Those early adopter organizations mainly went down a discretionary route, allowing managers to make assessments about talent without guidance. This was not always with great success and some even reverted back to performance ratings. Others have tried shadow ratings and stack ratings which are typically not communicated to employees, which don’t really align well with the notions of fairness and transparency.
Another approach that is becoming more common is to ditch assessment of employees performance altogether and use a market based pay approach.
Tip 4: Look at Pay Equity
Pay equity is probably one of the most compelling issues to address this season. It’s becoming more and more apparent that perceptions of pay equity impact brand perception and the ability to attract and retain talent. Studies have shown that employees who perceive lack of pay equity also believe them to be much larger than they truly are, and pay related employee turnover is mainly related to fairness.
The annual compensation review is a key event in benchmarking all employees, this really is the time to take an across the board assessment. Doing it now is much more effective than addressing on an ad hoc basis. We know increasingly employers are using pay equity adjustment budget pots during the annual pay review to tackle remediation issues.
Tip 5: Be data ready
At a recent client event focusing on business analytics, a surprising revelation was how the annual compensation review has become the key compelling event that drives employee data accuracy annually.
Obviously with every employee normally touched during the compensation review in some way - and the resulting impact on pay - it's key to get it right. But managing data can be the most time-consuming part of any review season with a significant proportion of time spent gathering, corralling and interpreting data.
So make sure you have prepared well ahead, using a compensation management solution you can even do data validations rounds checks with managers in advance of the process.
Tip 6: Empower Managers
In surveys identifying areas of reward risk, often cited is poor line management capability to manage performance and reward messaging. Concern is often expressed that allowing line managers discretion in allocating pay budgets may be at the expense of consistency of approach. There is definitely a lack of trust prevailing.
What we should be focusing on is an effective transfer of process ownership from HR to line managers, empowering them with the information and decision support tools they need to make optimal pay decisions. They make business expense decisions every day - why not trust them to do the same with pay budgets?
Tip 7: Poor communication
Having made it through the review process, there is a tendency to breathe a huge sigh of relief, when actually the communication phase is actually the most critical. Not least because reward communications is very important for creating perceptions of fairness and equity, and communicating reward issues poorly can erode these perceptions.
Ensuring employees receive timely communication with the right messaging from their managers will go some way to ensuring employees feel recognized for their contribution. In fact, in engagement surveys, open and honest discussion around pay was found to be more important than other typical measures of employee engagement.
So, consider these top tips as you progress through your compensation review season. To find out more watch the webinar here.
Curo is a market-leading provider of compensation management software, which enables customers to manage their pay review cycles efficiently and securely, with governance to optimize compensation spend. Curo sells globally and is used to manage compensation reviews for over 300,000 employees, in 130 currencies, across 150 countries.