Beyond the Basics: Innovations in Compensation Review Practices
It might sound like a bold claim, but compensation review practices have the potential to make or break your company. In an employee-led market, offering fair and transparent pay is crucial, and one of the main ways to retain top talent. Research from McKinsey & Company found that 36% of employees quitting their jobs are doing so because of inadequate compensation.
At the same time, many companies are facing budgetary restrictions. Replacing top talent can cost up to two times an employee’s annual salary, an additional expense that can be avoided with the right combination of salary and company culture.
As a result, many companies are looking at overhauling their compensation review practices. Evolving beyond the basics means looking at the cutting-edge HR best practice, and implementing new strategies that move your processes from ordinary to outstanding.
Here’s what you need to know.
The Traditional Compensation Review Process
The traditional compensation review process is being turned on its head. When it comes to performance, companies used to rely on employees being satisfied with an annual compensation review process, but this is no longer enough.
Employees are asking for more regular feedback, usually a blend of informal check-ins and regular, formal performance conversations that encourage career development.
Another key strategy for companies when determining employee compensation previously was to rely on their salary history. But this practice only perpetuates pay inequity, rather than promoting equal and transparent pay.
Employees want to be compensated fairly, that’s a given. But they’re also looking for jobs that offer purpose and recognition of their values. Unfortunately, companies have been slow to recognise this key sentiment.
Research from Gartner found that 82% of employees want their company to see them as a person — but only 45% of employees believe they’re actually seen this way.
That means it’s no longer enough to rely on these traditional approaches — because they don’t serve your employees. Here’s what to do instead.
Evolving into a new era of compensation review
Adapting and evolving traditional compensation review practices doesn’t have to be complicated, but it does rely on a transparent, employee-first approach that’s grounded in high-quality data. Here are the three most important aspects to bear in mind.
#1 Data-driven compensation analysis
Inadequate compensation is one of the top reasons people quit their jobs, so setting competitive (but realistic) salaries is a crucial skill for HR teams. But knowing what to pay your employees can also feel like a challenge, especially if your HR team doesn’t know where to access the best data.
Instead of relying on inaccurate and out-of-date information from sites like Glassdoor (spoiler alert: this was only ever meant for job reviews, not as a compensation tool), it’s time to find reliable salary data.
Ideally, any data should be:
- With a suitable-sized dataset
- Filterable (by job level, industry, geographical location, and more)
Where to find that kind of high-quality data? Right here, of course!
Figures have the most comprehensive, real-time salary data for Europe and the UK. As of April 2023, we have 80k+ datapoints from more than 1.2k companies. Pretty impressive.
Our data makes it easier for companies to:
#2 Transparency and Employee Participation
Transparency is probably one of the most talked-about topics for HR professionals. It’s being driven in part by the EU Pay Transparency Directive, but also by employees demanding a greater level of clarity over how their salaries are determined.
While people’s pay used to be a pretty closely guarded secret, most employees are now far more open about what they get paid. 73% of Millennials, 58% of Generation Xers, and 59% of Baby Boomers are happy to discuss their salary.
And it can be harmful to morale and motivation for employees to discover they’re being paid less for the same job as some of their colleagues.
That’s why HR teams need to get ahead of the curve. By setting accurate salary bands, you can check that everyone is being paid fairly, and adjust the salaries of any employees whose current salary isn’t equitable.
In tandem with increased transparency, employees want to know their opinions matter. Asking for their thoughts is a valuable way to identify any gaps in your pay practices to make sure you’re effectively meeting your employees’ needs.
Employee surveys are a great way to uncover opinions about:
- Current pay practices
- Employee rewards and benefits
- Career development opportunities
A blend of short, multiple-choice questions, plus opportunities to leave detailed comments, allows you to collect detailed insights. These can then be used to develop your total rewards package.
#3 Beyond Monetary Compensation: Total Rewards
Offering competitive salaries is key to attracting (and then retaining) top talent, but it’s not the only thing that employees are interested in. Other, non-monetary rewards are just as important. Often, it’s the non-monetary rewards that form the backbone of your company culture, something that when done right can make you stand out from the crowd.
Monetary and non-monetary factors come together into your total rewards package. This typically includes:
- Base salary: Calculated using your salary bands.
- Traditional benefits: Healthcare insurance (sometimes with options to include vision and dental packages)
- Voluntary benefits: Critical illness cover,
- Paid time off: This may include a blend of annual leave, sick leave, parental leave, and volunteer days.
- Retirement plans: Specific plans on offer will depend on the countries you and your employees are based in.
- Profit-sharing: This may include stock-based compensation or other incentives.
- Work-life balance: Opportunities for hybrid or remote work, flexible schedules, or time off for sabbaticals.
- Wellness programs: Gym membership, counselling sessions, subsidised lunches, environmental rewards.
- Career development: Training stipends, opportunities for internal growth, and professional development.
Deciding what to offer as part of your total rewards package is crucial — but so is communicating this to your employees. Creating an employee value proposition (EVP) allows you to outline exactly how your total rewards package provides both monetary and non-monetary rewards as part of your culture.
Developing and communicating a strong EVP can become an integral part of your recruitment process, helping to attract top talent by framing your company culture and values. Once employees are onboarded, an EVP can also help employees feel truly valued, decreasing turnover by up to 69%.
Taking the time to uncover employee preferences helps you build holistic, personalised total reward packages. These can be tailor-made to suit the needs of each employee, and often the generational priorities of your team can have an impact on the rewards that mean the most.
Generous parental leave packages may appeal to some employees, while others will place more importance on remote work and annual leave. While each employee’s package should be designed around their needs, it’s still important to remember to prioritise equal treatment, without discrimination.
How to update compensation review practices: Your mini-checklist
Ready to elevate your compensation review practices? Use our mini checklist to see if you’re on the right track:
- Assess your current compensation process — is it fit for purpose?
- Identify ways to innovate your compensation processes and practices (hint: asking employees for their opinions forms a key part of this step)
- Develop compensation review practices based on the factors you identified above.
- Communicate your new compensation practices.
- Overcome any resistance to change.
- Foster and encourage the adoption of new practices.
- Embed regular opportunities for evaluation (we recommend at least once or twice a year)
- Refine your new practices when necessary.
A new era of compensation review
Forward-thinking HR leaders are flipping traditional compensation processes on their heads — to the benefit of their employees and the companies they work for.
Embedding the newest best practices and innovations into your salary review process helps you move beyond the basics, into a new era. The first step of transitioning toward this transparent, employee-first approach is finding the right data. Ready to learn more? Discover how to pick your data source here.