Most employers’ highest expenses are employee salaries and benefits, making it critical for companies to conduct periodic compensation reviews. Due to the drastic overall impact of the COVID-19 pandemic in 2020, many companies planned for reduced salaries¹ or reduced salary increases in 2021. Those companies who haven’t reassessed compensation multiple times during the rapid labor market shifts in 2021 may be struggling to meet current market demand.
A full compensation review and plan should be conducted annually and refined every six months or as often 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.
How to Do a Company Compensation Review in 5 Steps
- Assign appropriate employees to the task.
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.
- Evaluate salary data for each position or job title against current market-based compensation and benefits.
As you analyze pay, you want to learn how your salary midpoints (medians) and salary bands compare to those of other similarly sized employers in your industry and metro area or areas. This research, documentation and comparison process is called salary benchmarking or compensation benchmarking.
- Review 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. Current benefits, even for lower-paying jobs, now provide more flexibility than was previously the norm.
- Make a decision.
Due to both regular cost-of-living salary increases and competitive pressures of a tight labor market, your compensation review may likely expose a gap between what your current employees are paid and what it would take to competitively attract a new hire for the same position. Can your budget accommodate a mid-year correction for those employees to reduce the risk of them feeling undervalued and ready to join “the Great Resignation?” If not, when?
- Communicate with your employees.
Whatever the results of your compensation review analysis and decision, communicating appreciation and competitive compensation plans to your employees will remove uncertainty for them and let them know the company cares enough to strive for fair compensation. Many studies have found that employees highly value additional characteristics of a company; even if your message is that pay raises will be delayed, the communication will likely improve employee retention.
Tips for Good Market-Based Salary Survey Results
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.
Be aware that some salary sources may be easy to find but do not provide current or verified data. Job descriptions can also vary significantly for a job title, so be sure comparisons are based on similar job requirements.
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.
Compensation Reviews Help 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 allows you to anticipate how to budget for employee retention and hiring needs. It also makes you aware of how to best meet the salary demands for valuable employees as they grow with your organization.
Sources: 1) shrm.org/resourcesandtools/hr-topics/compensation/pages/salary-increase-budgets-decline-for-first-time-in-12-years.aspx