How To Handle Off-Cycle Compensation Adjustments

April 26, 2024
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In most organisations, compensation adjustments happen through a set process: the annual compensation review. And we’re big fans of this approach here at Figures. We believe that conducting regular, structured reviews is the best way to keep things fair when it comes to compensation. 

But what happens if you need to adjust an employee’s salary outside of that process? While this shouldn’t be happening all the time, there are circumstances where waiting until the next compensation review comes around might not be ideal (especially if you’re only running compensation reviews once a year).

In this article, we’ll talk about some of the situations when you might need to make off-cycle adjustments to an employee’s compensation. We’ll also run through some of the risks of mishandling this process, and provide our tips for keeping things fair and efficient.   

Why off-cycle adjustments might be needed

First things first: why do off-cycle compensation adjustments happen? Here are some of the most common reasons:

  • Promotions: If an employee is promoted to a new role outside of compensation review season, you’ll need to adjust their salary. 
  • Extra responsibilities: You might also want to reward employees who take on significant additional duties without receiving a promotion.
  • Additional qualifications or certifications: When employees gain new skills through additional training, it makes sense to adjust their salary to reflect this. 
  • Exceptional performance: Some organisations choose to reward employees for excellent performance or significant achievements, even outside of compensation review season. 
  • Market changes: In fast-moving markets, you may need to make changes more than once or twice a year simply to keep up with the competition.
  • Internal inequity: If you identify an employee who is not being paid fairly compared to their colleagues, you may want to correct this without waiting for the full compensation review. 
  • Retention offers: Sometimes, employees who have secured a role with another organisation can be tempted to stay with a counteroffer — and this could happen at any time of the year. 

The risks of making off-cycle adjustments 

So, yes, there are some circumstances when making off-cycle compensation adjustments makes sense — but that doesn’t mean you should just do it without thinking of the consequences. Here are a few of the risks of making too many adjustments without enough careful thought.

It could undermine your compensation strategy and processes

As an organisation, you’ve probably put a lot of time and effort into your compensation strategy, including developing a fair and effective compensation review process and an objective system for measuring employee performance. 

And making too many off-cycle adjustments can undermine those systems and processes. That’s especially true if you’re allowing individual managers to make them without considering your normal salary increase criteria. 

It could lead to confusion or frustration

If your HR team has done its job right, your employees should understand how the compensation review process works at your organisation. But off-cycle compensation adjustments can be confusing if you don’t communicate effectively around them. 

For example, employees who don’t get an adjustment might feel that they’ve been unfairly looked over, even if the reasons behind the adjustment are sound. 

And it’s just as important to properly explain the reasoning behind any adjustments to employees who are getting a raise. Otherwise, they may expect the same thing every year — and end up disappointed when it doesn’t happen. 

It could cause internal pay inequity  

Companies that care about pay equity have specific systems in place to keep things fair. For example, they may keep a close eye on their gender pay gap, and ensure that people are paid the same salary for the same work. 

However, the more adjustments that happen outside of official systems, the more these processes are devalued and undermined. And, if they’re not handled effectively, you might inadvertently introduce internal inequities by awarding raises to certain employees without considering the impact on your overall pay structure. 

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6 tips to help you handle off-cycle adjustments the right way

So, how can you make off-cycle compensation adjustments when needed, without causing internal inequity, frustrating employees or undermining your overall pay structure? Here are our top tips. 

1. Be strategic in your approach

Most of the problems with off-cycle compensation adjustments occur when they’re done in an ad hoc, uncontrolled way. That’s why the first step to getting it right is putting together a proper strategy. 

You can start by asking yourself questions like: 

  • In what circumstances will we allow for off-cycle compensation adjustments? 
  • What metrics will we track to determine who is eligible for an adjustment?
  • Who needs to approve off-cycle adjustments? Can this be done by managers, or do they need the approval of the head of department or HR? 
  • Where will the budget for off-cycle compensation adjustments come from? 
  • Is there a cap on the number of off-cycle adjustments that can be made in a year? 
  • How will we communicate about off-cycle adjustments to employees? 

2. Conduct proper research and analysis 

In the case of adjustments to account for inflation, shifts in the market or internal inequity, you need to make sure you’ve got your facts straight before you make any changes. 

After all, it can be very difficult to reduce an employee’s salary after you’ve raised it (unless the raise was explicitly temporary). That means if you don’t do your research, you could be stuck paying over the odds for an employee whose role doesn’t really merit the salary they’re getting. 

Before making any changes to an employee’s compensation, you should carefully evaluate market trends, industry benchmarks and your internal pay structures, to ensure your proposed change is aligned with the relevant internal and external considerations.  

3. Consider the long-term implications 

Making changes to an employee’s compensation can have lingering effects — and it’s important to consider them carefully before making any hasty decisions. 

For example, giving an employee an off-cycle raise now might make them ineligible for another increase once compensation review season comes around. And, if you don’t communicate this clearly, they might end up disappointed and disengaged. 

You also need to make sure that any adjustments you make are in line with your overall strategy and compensation philosophy. You should think about the possible impact on team dynamics, as well as how the change will affect your budget. 

Ultimately, it’s about balancing short-term and long-term needs to maintain an equitable, sustainable compensation framework. 

4. Communicate clearly to avoid confusion 

How you communicate about off-cycle compensation adjustments is critical. Do it wrong, and your employees could end up confused, disappointed, and even disengaged. 

That means you should make sure you properly explain the when, where and why of every compensation decision to the relevant employees. It’s particularly important to be clear about the objective reasons behind the raise. That way, employees will understand it’s an unusual situation instead of expecting the same thing next year. 

If a change in an employee’s compensation is temporary (for example because they’ve taken on extra responsibilities for a limited period), you should also be clear about why they’re getting the extra compensation and when it will end. 

5. Document and track everything 

To avoid derailing your overall compensation strategy, you need to make sure that any off-cycle adjustments happen in a controlled and managed way. That means it’s important to carefully document every change, including the reasons behind it and the approval process it went through. 

This creates a historical record that tells you how and why each employee’s compensation has evolved over time. It can also help you to spot any patterns, such as particular managers being overly generous with off-cycle adjustments. 

6. Use the right tools 

Tracking and managing off-cycle compensation adjustments is a complicated process. And it gets even more complicated if you’re trying to manage the whole thing on an unwieldy Excel spreadsheet.

To keep things easy, fair and compliant, you need a comprehensive compensation management tool — like Figures, for example. 

Figures can help you keep track of every employee’s compensation over time by creating a detailed digital paper trail. Plus, you can also use Figures to spot internal inequities, and to compare your salaries to real-time market data so you know when an adjustment is truly needed. 

Essentially, Figures gives you everything you need for a structured, strategic approach to compensation — without the Excel-induced headache. 

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The key to fair and efficient compensation reviews 

Off-cycle compensation adjustments are sometimes necessary, but they shouldn’t be the norm. Instead, compensation should primarily be managed through a structured and well thought-out compensation review process that happens once or twice a year. 

But every compensation leader, HR professional and manager knows that compensation reviews can be… a bit of a nightmare, to say the least. 

Well, not any more. With our Compensation Review module, you can easily handle whole-company compensation reviews in a fraction of the time, without relying on clunky and unsecure Excel sheets. The module allows you to centralise and record every decision, and collaborate securely and seamlessly with colleagues and decision-makers. 

With data-driven recommendations, easy budget monitoring and proactive compliance with upcoming pay transparency laws, Figures gives you everything you need for frictionless, efficient and easy compensation reviews. 

Want to learn more? Sign up for a demo to get started. 

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