By Kaitlyn Knopp, Co-Founder and CEO, Pequity
Hiring teams and HR leaders are dealing with more turmoil in the talent market than we’ve ever seen in our careers. But there’s an opportunity to create order from that chaos by taking a strategic approach to your compensation cycle.
How can you be more strategic about compensation? By making sure your organization is aligning compensation with your internal goals and your external competitive landscape.
Let’s take a closer look at what compensation cycles mean, how your organization can get better outcomes from compensation cycles, and how the compensation cycle fits into your overall compensation strategy.
Compensation Cycle: Overview & Definition
A compensation cycle is the comprehensive process of looking at your organization’s compensation, including salary, equity, and benefits, and comparing your compensation to see how it measures up to your internal business strategy and the external competitive landscape.
Going through a compensation cycle is an opportunity to look inside your organization to see if you’re really compensating people in a way that aligns with your strategic goals, while also taking the pulse of the wider talent market to make sure your pay and benefits are competitive.
Some organizations do a compensation cycle on an annual basis, while others might prefer to do this semi-annually.
Key Objectives for a Compensation Cycle
The compensation cycle should address a few key questions, for both internal and external review of your compensation.
We selected some of the most critical questions you can ask when reviewing comp cycles.
INTERNAL REVIEW
What is our North Star for how we want to compensate people?
Your organization should have a guiding strategy for compensation, based on your company culture and core values of how your company wants to build relationships with employees. This might include:
- Offering a four-day workweek
- Going remote-first or working from home whenever possible
- Committing to pay transparency
- Offering above-market pay rates for key positions
- Providing exceptionally generous health insurance and fringe benefits
- Being creative with how much equity you offer
- Being flexible with your equity vesting schedules
The compensation cycle is a chance to address these questions and make adjustments to stay on track with your overall mission and values.
Are there inconsistencies or disparities in pay?
People want to be paid fairly, and sometimes pay disparities happen unintentionally, based on timing and changes in the market. Compensation cycles give you a chance to correct these pay issues. Doing a pay equity test can help you take a closer look at how people are being paid across roles or departments, and determine if people with the same role and level are being paid differently based on gender or race/ethnicity.
Who is eligible for a pay raise?
A compensation cycle helps you take a broad look across the organization to see who is eligible for a pay increase. Some people might have joined the company too recently to be eligible, while others might have already received a recent promotion or performance-based bonus.
Who are our MVP employees?
Go through a talent mapping exercise to identify top performers and key employees who are a top priority to retain and who might need extra attention during the compensation cycle.
EXTERNAL REVIEW
Along with an internal view of your company’s compensation structure and strategies, it’s important to use the compensation cycle as an occasion to review the external environment around compensation.
Are we paying people competitively with current market rates?
There are a few signs to watch for to see if your company is really being competitive with your pay rates:
- Rise in employee attrition due to compensation: if you are seeing higher turnover, and people are sharing “compensation” as a reason for why they’re leaving the company, this is a probable sign that your compensation needs to be higher to stay competitive.
- Job candidates are declining offers: is it hard to get people to agree to join your company? This could be a sign that they are getting better offers from your competitors.
- New hires are negotiating above-range salaries: If you are recruiting new talent from other companies, and your job candidates are demanding higher compensation than you had expected based on your salary ranges, this is a sign that your compensation levels might need to rise – or you risk a situation where your newer hires are being overpaid relative to experienced employees.
Do we need to adjust our salary ranges?
If your company is encountering situations where people are rejecting what you thought was a competitive job offer, if people are leaving the company to get a much better compensation package from a competitor, or if your new hires are getting paid more than your experienced employees, these could all be signs that you need to raise compensation overall. There might also be discrepancies based on role or level; you might have had some positions get paid more than others, in a way that is out of alignment with your preferred compensation strategy.
Do we have access to updated market compensation data?
How does your company know if your pay is really competitive? Employee surveys might not give you the most accurate impression of the ever-changing landscape of the talent market.
Pequity works with Levels.fyi to provide real-time comp data across hundreds of geographies. Having access to real-time market data can help your organization make better-informed decisions about compensation, avoid making mistakes, and align your compensation with your business’s larger priorities and core values.
Ready to learn more about best practices in compensation cycle management?
Check out our free video demo to show how your HR leaders and hiring teams can get the most out of your comp cycle by accessing a Pequity demo here.