How Compensation Reviews Impact Your Company Culture (and Vice Versa)

February 16, 2024
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How Compensation Reviews Impact Your Company Culture (and Vice Versa)

At its most basic level, compensation is a system that rewards employees for meeting their employer’s expectations. That can mean a lot of different things, including performance, loyalty and adherence to company guidelines. 

And it also encompasses how well they embody the company’s values and beliefs — in other words, its company culture.

Ultimately, the compensation review process is about rewarding employees (with pay increases or bonuses) for displaying the types of behaviours that you want to encourage. That means it both influences and is influenced by your company culture. 

In this article, we’ll dive into the link between company culture and the compensation review process — with a little help from our friends at Mo, an employee reward and recognition platform in the UK. 

The link between culture and compensation 

Your company culture isn’t just about the list of shared values you have published on your website. It’s about the norms, behaviours and attitudes that are present in your organisation. And in many cases, these are shaped by the things you choose to reward through your compensation strategy

We’ve talked before about the link between compensation and your company culture. You can read our full guide here, but here’s the gist: your compensation strategy and your company culture are both ways of telling your employees what’s expected of them — and if they’re not aligned with each other, you could have a big problem on your hands. 

How your company culture impacts the compensation review process

Every company has its own process for compensation reviews. This might be influenced by things like the size of your business, your budget and your organisational structure. And your company culture also has a big role to play. 

For example, your company culture probably has an impact on: 

  • Whether you run regular compensation reviews: Conducting compensation reviews at least once a year ensures employees are paid fairly and competitively. That means it's a must if your culture has a strong focus on reward and recognition.   
  • How transparent you are around the compensation review process: Companies can choose to be more or less transparent about the ins and outs of their compensation reviews. There’s no one correct approach — it’s different for every organisation. 
  • How you communicate about the compensation review process: Communication is a big part of the compensation review process — and exactly what this looks like is different for every organisation. For example, some might favour face-to-face communication, while others prefer to send out compensation updates by email. 
  • How you award increases and bonuses: Ultimately, the point of the compensation review process is to reward certain traits and behaviours and discourage others. This is shaped by the company culture you’re trying to build. 
  • How you measure performance: For many organisations, performance is a key consideration in determining raises and bonuses — but there are a lot of different ways of measuring it. For example, you might use 360° reviews or just rely on ratings from each employee’s manager. Some organisations also take into account group performance instead of individual ratings.

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How compensation reviews impact your company culture 

Of course, it’s a two-way street: just as company culture has an impact on your compensation review process, the way you conduct reviews can feed back into your culture — often with unintended consequences.

Here’s an example: imagine a company that has a strong focus on collaboration and teamwork. Its core values indicate that everyone should be supporting each other and working together towards a common goal. 

But, when compensation review season rolls around, the company rewards employees with bonuses based on their individual performance ratings. Wouldn’t this be confusing as an employee? 

As well as thinking about how your culture impacts your compensation review process, you need to carefully consider the potential impact that the process could have on your culture — and make sure you’re not sending mixed messages to your team. 

The importance of clear, effective communication during the compensation review process

At Figures, we’re big believers in the importance of clear and transparent communication about all things compensation. But our wheelhouse is compensation — not company culture. 

So, we asked our friends at Mo to help us understand the link between communication during the compensation review process and a strong company culture. Mo is a UK-based employee recognition platform that helps companies transform their cultures through recognition, rewards and engagement. 

Here’s what they had to say: 

“Compensation is no longer the only factor employees consider when deciding where to work. Company culture is just as important when it comes to hiring, engagement and retention. During pay reviews, this shift can be used to a manager’s advantage. 

A fair and competitive compensation package is the foundation of every great employee experience, but if you need to deliver bad news at the end of a pay review, remember that employees may have other priorities. 

Be clear and transparent. If there is no significant pay rise coming, communicate the other benefits you offer. According to McKinsey, bonuses or other financial perks are not the only way to handle churn. Employees want meaningful interactions — and this starts with how you talk to your people. If you model positive communication to your employees, they will be more likely to offer transparency in return.”

How to emphasise your company values before, during and after your compensation review 

Of course, company culture is about much more than just compensation. And there’s little point in focusing on amplifying your company culture during review season and ignoring it the rest of the year. 

We asked Mo to tell us how employers can emphasise their values throughout the year — not just during the compensation review. Here’s what they said:

“What comes to mind when you picture a positive company culture? As experts in employee experience, we know that recognition, flexibility and connection are the pillars of a great work culture. 

But according to a recent survey, 82% of employees don’t feel recognised enough, and 40% say they would work harder if recognition increased. This has little to do with compensation and a lot to do with company values. It might be surprising, but lack of appreciation is one of the top reasons why employees leave. Beyond pay reviews, consider incorporating a way of regularly recognising and rewarding employees. 

Employee engagement software is proven to increase productivity by motivating your teams to perform better. It also fosters connection between employees through peer-to-peer recognition, ensuring that your company culture flourishes.”

Building the right compensation review process for your organisation 

Every organisation is different — and there’s no one right way to do compensation reviews. The important thing is to land on a process that works for your organisation. That means it should be aligned with your core organisational values, and feed into the type of culture you want to build. 

Need help? Here are a few tips to get you started:

  • Start with your compensation philosophy: Your compensation philosophy is a high-level statement of your core beliefs about compensation. That means it should influence every part of your compensation strategy — including how you conduct reviews. 
  • Decide on the right level of transparency: Every company has its own point of view on the right level of transparency around compensation. Some choose to be completely open about their process and strategy, while others take a more guarded approach. The important thing is to decide on a level that feels right to you — and then stick to it. 
  • Create a compensation communication plan: As we’ve discussed, how you communicate about the compensation review process can have a big impact on your company culture. To make sure things are fair and consistent, it’s important to build a comprehensive compensation communication plan
  • Decide how you’ll award increases: The things you choose to reward during the compensation review process play a huge role in shaping your company culture — whether intentionally or not. Think carefully about the behaviours you’re promoting through your salary increase criteria, and whether or not they’re in line with your culture. 
  • Seek feedback from your employees and managers: No compensation review process is 100% perfect. That’s why it’s important to iterate and adapt to make sure it’s as fair as possible. By asking for feedback from both the managers involved in the process and your wider workforce, you can get a better idea of whether your process is aligned with your desired culture. 

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Learn more

Want to learn more about company culture, compensation reviews and employee experience? Check out these articles from our archive: 

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