Preparing for Compensation Planning Season
The following article first appeared in the Insights section of Mercer’s website. It is reposted here with permission.
Have you ever heard the phrase “slow down to speed up?” Instead of scrambling at the 11th hour to pull together a lack luster compensation strategy, sometimes the best thing to do is slow down.
In today’s complex labor market, having a competitive compensation strategy is imperative, and taking valuable time to strategize will allow you to get it right the first time and head into the new year with a strong compensation planning process.
What Is Compensation Planning?
Compensation planning is a yearly process of creating and implementing a structured approach to determine how employees are paid and rewarded for their work within your organization.
The goal is to align employee compensation with the organization’s goals, the current labor market conditions and their individual performance.
Determining whether your base pay, salary ranges, benefits, and other direct and indirect compensation offerings are competitive is imperative.
However, you first need to define your organization’s compensation philosophy. If you haven’t yet defined that, our bonus tip is to go do that first.
The compensation planning season becomes more efficient and accurate once you’ve determined your organization’s compensation philosophy.
From there you can create and fine tune your compensation plan annually by following these six compensation planning tips from the experts at Mercer.
1. Collaborate with Key Stakeholders
Compensation structure and total rewards programs impact your entire business. If you lack an attractive compensation plan, you will have more challenges securing the employees you need. That sets off a chain reaction ultimately preventing the organization from achieving objectives.
Rather than prioritizing downtime in the summer, use these months to collaborate with the business’s stakeholders. This includes everyone from department managers, executive leadership, finance professionals, recruiters, and other members of the human resources and compensation management teams.
Consider allotting about 30 to 45 minutes during the slower months to get together and have a meaningful conversation. Since your goal is to discover how best to support the employee you’ll want to be sure to identify what’s important to the employees.
David Kopsch, senior principal with Mercer, says it best, “Put your ear to the ground! Connect—internally with finance and the business and externally with trends/data consultants!”
2. Evaluate Survey Usage, Data Needs
Mercer partner Joe Ziomek says “As salary surveys are about to be released, now’s the time to start updating your job matches to salary survey jobs. You can update your salary structures now too for 2025. Even with the slight slowdown in inflation, we’re continuing to see pay increases above historical averages. Get ahead of the game.”
Operational needs, job performance duties, and the nature of the business itself change over time. The surveys that you utilize to build a desirable and market competitive total compensation package may need to change to provide what your organization needs.
A best practice is to review the salary surveys you are currently using and identify if there are any data gaps. Getting total compensation right is the best way to attract and motivate the employees you need.
In addition, your matches to survey jobs may change over time. It’s a good idea to review your job mapping to adjust for changes, incorporate new jobs, etc. Sure, you’ll still have to make some adjustments once the new data comes out, but why not give yourself a head start?
3. Get Your HR Information Systems Team Involved
Having a robust amount of salary and compensation data is great, but make sure your HR information systems are all up to date.
Preparing your HRIS system for the compensation planning season always seems to take longer than planned, which leads to last minute changes and opens you up to errors.
“Getting the HRIS system ready is a heavy lift and usually one of the more challenging points” remarks Mercer principal Muriel Taing.
Minimize the risk by connecting with your HRIS team now to plan out the process, identify timelines and accountability, data needs and interface points.
4. Identify Which Job Families Need Special Attention
We recommend creating a schedule for this review process to ensure that each job family gets the attention it needs.
It’s a best practice to review your most highly populated job families annually, and put others on a rotation every few years.
When reviewing job families, look for things like the average compa-ratio, and whether employee pay is falling outside the ranges.
In addition, talk to recruiters and HR business partners and see if they are experiencing difficulty in hiring or retaining in any of the roles.
Identifying jobs that have been difficult to market price is also something to watch for when fine tuning your market pricing and compensation planning.
5. Refresh, Revise Communication, Guides
Dust off all the communications from last year and see what you can refresh and update for this year’s process.
Though there may still be some unknowns, much of what will take place this year, and what you need to communicate with managers and employees, will be similar.
Getting the communication plan in place while you have a some time to focus on the details will result in delivering clear and concise messages about compensation.
6. Create a Wish List for the New Year
The next year’s planning likely begins a few months after summer ends, or three-four months prior to the start of your fiscal year. Make this time more effective by planning for it now.
Start by coordinating with the departments you assist. Based on your one-on-one check-ins, you should have an idea of their needs and how you can support them and their workload.
Budget time and resources now to enable them to be successful. At the same time, commit to timelines with your colleagues while also setting realistic expectations.
Then use this information to demonstrate what resources or budget you need for the next fiscal year.
By relying upon facts and figures communicated to you by the business’s constituents themselves, you can present a powerful argument to the financial team.
Finally, design an annual calendar that sets you up for success. You’re already aware of numerous activities that recur annually, so schedule those first.
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