Not sure how often to review your employees’ compensation? While some organizations might wait for employees to bring up the topic, the best organizations plan ahead. We talked to ERC expert Nicole Doria about the ideal frequency for compensation reviews and the key factors to consider.
How Often Should You Conduct Organization-Wide Compensation Reviews?
As Nicole Doria points out, “review market data for your jobs at least every 12 to 24 months to ensure that pay is in line with the market and it remains competitive.”
Purpose of Regular Reviews
Regular compensation reviews serve two key purposes:
- Market Competitiveness: The job market evolves quickly, and salaries can shift over time. Regular reviews help you adjust pay scales to match current market rates.
- Internal Equity: Consistent reviews promote fairness by ensuring employees in similar roles are compensated equitably.
Factors Influencing Review Frequency
While a 12 to 24-month interval is a good guideline, there are times when you might want to review compensation more frequently:
- Fast-Paced Industry Changes: If your industry experiences rapid shifts, like tech, energy, or healthcare, salaries may change quickly. More frequent reviews help you stay ahead of market trends.
- Rapid Company Growth or Expansion: Entering new markets or scaling quickly can introduce new roles and salary benchmarks, necessitating more frequent compensation assessments.
When to Conduct Individual Compensation Reviews
Individual compensation reviews should happen as a result of some key events that we’ll outline below, not just during annual reviews.
Nicole Doria says it’s important to “review market data when the following circumstances occur: when new jobs are created, when employees are promoted into new roles, when organizations are experiencing high turnover, and when struggling to find the right employees.”
Events to Consider a Compensation Review
Let’s review those key events that could prompt an individual compensation review:
- Creation of New Roles: When you introduce new positions, it’s important to research market rates to offer competitive salaries. This will help you pinpoint compensation based on the scope of the role, its impact, and the required skills and experience.
- Employee Promotions or Significant Role Changes: If an employee takes on more responsibilities or moves to a higher position, their compensation should reflect their new role. Yes, it’s the fair thing to do, but it also increases your chances of retaining employees that are growing with your organization.
- High Employee Turnover: An uptick in departures might signal that your compensation isn’t keeping pace with the market. Employees may be leaving for higher compensation elsewhere, and it might cost you more in the long-run when you factor in the cost of recruiting, hiring, and training new employees.
- Challenges in Recruiting Qualified Candidates: Difficulty filling positions can indicate that your salary offerings aren’t competitive enough. Again, prolonged job vacancies or inexperienced candidates may end up costing more in the long-run.
Action Steps
When these situations occur, consider taking the following actions:
- Conduct a Market Data Analysis: Research current salary data and trends for specific roles to understand what competitors may be offering. Try to use data that’s specific to your industry, company size, geographic location, and the roles you’re evaluating.
- Adjust Compensation Packages: Update your compensation to align with market conditions. Benchmark not just wage and salary, but variable pay and benefits as well.
By staying proactive with individual compensation reviews, you could avoid potential issues before they impact your organization. It’s all about being responsive to both market dynamics and your employees’ evolving roles.
How to Determine the Right Compensation Review Frequency
Finding the right cadence for compensation reviews is important to stay competitive and keep your team engaged. Here are some steps to help you set the right frequency.
Establish a Regular Compensation Review Schedule
Setting a consistent schedule for organization-wide compensation reviews sets a standard. Consider scheduling an overall compensation review at least every 12 to 24 months. Keep in mind if you’re in a rapidly-changing industry or your organization has gone through major changes, you may want to implement a more frequent review.
Take Advantage of Market Data
Staying informed about market trends can help ensure that your compensation packages are competitive.
- Use Compensation Surveys and Benchmarking Tools: Use reliable compensation surveys to gather salary data that allows you to segment by location, company size, geographic location, experience level, and more.
- Subscribe to Industry Publications: Regular updates from reputable sources keep you informed about shifts in salary expectations. You can typically access these through industry associations or publications.
Consult with Compensation Experts
Sometimes, bringing in outside expertise can provide an unbiased perspective and insights that you may not have considered. Compensation consultants can offer advice based on your industry’s nuances and your organization’s specific needs.
Be Proactive and Responsive
Addressing compensation proactively can help prevent turnover and improve employee satisfaction. Don’t wait for problems to escalate before taking action.
Next Steps
Setting a regular cadence for compensation reviews helps you stay competitive and keep your team engaged. By being proactive and responsive, you’ll not only retain your current talent but also make your organization more appealing to potential hires.
Access the latest compensation data or learn more about ERC’s compensation consulting services.
