Reduce disparities in pay with an annual compensation review
Have you been wondering what an annual compensation review is? Maybe you have one coming up with an employee and want to learn more about what to expect. They can be quite stressful when the time comes, so it’s best to arm yourself with the necessary knowledge to ensure everything goes smoothly.
In this blog post, we’ll dive into valuable insights to help you navigate your upcoming annual compensation review as well as stir you in the right direction by sharing functional solutions such as what Figures offer.
What is the annual compensation review process?
The annual compensation review (ACR) process systematically evaluates and adjusts employee compensation within an organisation.
The process, as its name suggests, typically takes place on an annual basis, but there are also some guidelines that it follows to work effectively! While some businesses operate differently, this is the main idea behind the process.
The first step involves the most obvious part: evaluating employee performance over a specified period, usually the past year.
This assessment can be based on various criteria, such as individual goals, job responsibilities, competencies, and overall contribution to the organisation.
Companies often utilise external salary surveys or data from compensation databases to gather information on industry-specific salary ranges and compensation practices.
These surveys provide valuable insights into how other organisations compensate employees in similar roles and industries.
Performance and goal setting
As part of the ACR process, organisations often revisit or establish new performance goals and objectives for the upcoming year. This helps set clear expectations and provides a framework for future performance evaluations and compensation reviews.
Honourable mentions on this list include budget allocation, compensation recommendations, the approval process, and communication and implementation. Some companies may have additional steps or variations on these guidelines.
You’ll be happy to know there are tools out there made by professional businesses, like Figures, to help with this process!
Why is it important to have an annual compensation review?
Having an annual compensation review is important! A regular compensation review ensures fairness and equity within the organisation.
It allows for a systematic evaluation of employee performance and helps ensure that employees are compensated based on their contributions, skills, and achievements.
A transparent and consistent process promotes a sense of fairness and can help reduce potential disparities in pay.
A compensation review process can motivate employees to perform at their best. It provides an opportunity to recognise and reward exceptional performance, which can boost employee morale, engagement, and productivity.
When employees see a direct link between their efforts and the compensation they receive, they are often more motivated to excel in their roles.
By evaluating employee performance and linking it to compensation, organisations can identify areas for improvement and align individual goals with organisational objectives.
What should you expect in an annual compensation review?
In a salary review meeting, employees should expect certain key elements to be discussed, though the specifics may differ depending on the organisation and the purpose of the meeting.
The meeting will likely begin with a discussion of an employee’s performance over the designated review period. A manager or HR representative may provide feedback on employee accomplishments and whether the employees’ performance aligns with the organisation’s goals and expectations.
The primary focus of the meeting is usually the discussion of employee compensation adjustment. This may include a base salary increase, a bonus, stock options, or other forms of compensation.
Employees may have the opportunity to ask questions, seek clarification, or provide additional information regarding performance or other factors that they believe should be considered in the compensation decision-making process.
Alongside the compensation discussion, the meeting may also involve setting performance goals and objectives for the upcoming period. This allows for a forward-looking approach to development and aligns efforts with the organisation’s priorities.
Ensuring that you have the best annual compensation review process can make a big difference for the company.
It is one of the most critical processes for organisations to ensure fair pay, attract and retain talent, motivate employees, align performance with rewards, and comply with legal requirements.