What is a great pay review process?

1. Understanding Compensation Reviews

A compensation review is a formal evaluation of employee compensation packages, typically occurring over a 4-6 month period. It aims to maintain fair and competitive pay, boost engagement, and reduce attrition.

2. Key Elements of the Process

The compensation review process involves several important steps:

1. Stakeholder alignment on the approach
2. Budget agreement with Finance
3. Updating benchmarks and refreshing salary bands
4. Conducting performance reviews
5. Determining and agreeing on compensation adjustments
6. Communicating changes to employees
7. Updating documentation and payroll

3. Preparation and Best Practices

To ensure a smooth compensation review, companies should:

• Remind stakeholders of the compensation philosophy
• Agree on criteria for adjustments
• Review benchmarking data providers
• Set and communicate timelines
• Communicate transparently with employee

4. Frequency and Duration

Most companies conduct annual compensation reviews, though some opt for more frequent evaluations. The process typically begins in August or September, with adjustments rolled out between January and March.

5. Performance-Based vs. Market-Based Approaches

Companies generally choose between three main approaches:
1. Performance-based reviews: Linking compensation to employee performance and contribution
2. Market-based reviews: Adjusting compensation to align with market rates
3. Combination approach: Incorporating both performance and market factors

6. Tools and Technology

Modern compensation review tools, such as Ravio, can significantly streamline the process by consolidating benchmarking data, salary bands, and pay equity analysis into a single platform.

Conclusion

Effective compensation reviews are essential for maintaining a competitive edge in talent acquisition and retention. By implementing a well-structured process and leveraging appropriate tools, organizations can ensure fair and motivating compensation practices.