Most employers report their highest expenses are employee salaries and benefits. So it’s important for companies to conduct a periodic compensation review. How often does your company evaluate salary ranges for each position?
Compensation planning should be done annually and refined every six months as market supply and demand shifts occur. When salary reviews are done on a regular cadence, you gain useful insights into how current salary bands and overall compensation packages may impact employee engagement, retention, productivity and growth.
Conducting a Companywide Compensation Review?
Before you begin, it’s helpful to consider who in your company would be best suited to lead the compensation review project. Depending on your organization’s size, this responsibility may fall to one person or a team, including your COO, CFO and HR department. Ultimately, you want to select employees who are familiar with your annual budgeting process, forecasting, benefits and employee-performance reviews.
Evaluating salary data for each position is the best place to start. As you analyze, you want to learn how your salary midpoints compare to those of other similarly sized employers in your industry and metro area. This research, documentation and comparison process is called salary benchmarking or compensation benchmarking. Be aware that some salary sources may be easy to find but do not provide current or verified data.
Not only do a position’s duties and level of responsibility impact compensation, but each employee’s skills and years of experience also affect how high a salary employees can demand.
Companies may be tempted to analyze salary only on an individual basis, such as during an annual performance review. By doing so, though, your company misses out on key insights. For instance, if you haven’t reviewed compensation data for five years or more, you may be paying valuable employees below market value for their skill level.
This usually occurs as employees earn certifications or gain more responsibility. The standard 3 percent annual salary increase may not be enough to correct the issue. Tapping into salary insights will ensure you’re paying competitively and will help retain employees.
To simplify the process, use a tool that allows you to quickly access salary bands and compensation midpoints in your industry and metro area. Tapping into forecasted wage growth for positions over a five-year period will also help ensure accurate personnel budgeting for the next year or more.
Once you’ve completed the salary analysis portion of the overall compensation review, evaluate your company’s employee benefits. Many employees, particularly in positions requiring certain education or specialized skills, have come to expect benefits like health insurance, retirement plans and paid time off as part of their total compensation package.
Performing Compensation Reviews Helps You Plan for Future Needs
To remain competitive and plan for employment costs this year and beyond, you must consider a variety of economic variables. Analyzing your company’s total compensation packages allows you to anticipate how to budget for hiring needs and increased benefits costs. It also makes you aware of how to best meet the salary demands for valuable employees as they grow with your organization.