Why Compensation Review Season Is the Most Wonderful Time of the Year
At Figures, we strongly believe that compensation review season is the most important time of the year. But then, we would. We’re in the business of helping companies to make fairer, more data-driven salary decisions, and ultimately build a compensation structure that delivers equitable, competitive pay.
So yes, compensation reviews are kind of our thing. And we’re on a mission to show every organisation that this is a crucial moment in the calendar.
In this post, we’ll share some of the most important reasons to conduct regular compensation reviews — plus what they actually mean for your business.
Psst! This post is an edited excerpt from our recent report, Compensation Reviews in the Era of Pay Transparency. In it, we share insights from our latest compensation review survey, plus tips on running compensation reviews that comply with the EU pay transparency directive. Download the full guide here!
4 benefits of conducting regular compensation reviews
Let’s get started — here are four things that conducting regular compensation reviews can do for your business:
1. Ensures fair and competitive compensation
Your annual compensation review is your yearly opportunity to check in with the salaries you’re paying and make sure they’re competitive and fair. It allows you to ensure your salaries are in line with your overall compensation philosophy, and correct any discrepancies.
2. Aligns salaries with market trends
The salary you negotiated with a new hire a year ago might have been competitive then, but the market can move quickly. And for many companies, the annual compensation review is the moment to review salary bands and individual salaries against the market and ensure they’re still aligned.
3. Helps correct any internal pay discrepancies
Even organisations with the best intentions can end up with the odd pay discrepancy. That might be because one new hire negotiated better than another, or because an employee has taken on new responsibilities without additional compensation, for example. Either way, a compensation review is a regular opportunity to correct any disparities and make sure everyone is being paid fairly.
4. Demonstrates a commitment to fair pay
Employees like working for companies that care about them — and your annual compensation review is an opportunity to show your employees that you do. Even when they don’t get a substantial raise, the fact that you’re actively reassessing salaries reassures your employees that you’re committed to paying them fairly.
What does this mean for your organisation?
You don’t need us to tell you that conducting salary reviews is a lot of work. And if you’re going to put that much time and effort into something, you’ve got to be pretty sure it’ll be worth it. So, while it's all well and good talking about fair and competitive salaries, what most businesses wants to know is what impact this will actually have on their organisation.
Let’s jump into some of the concrete, measurable benefits that you can expect.
In a recent survey, employees who were considering leaving their jobs listed low or unfair pay as the second-most common reason for leaving. If you’re not regularly reassessing your salaries, you’ll find that the best employees end up looking for better-paid work elsewhere — why wouldn’t they? Conducting regular compensation reviews provides an incentive for your employees to stick around because they know they’ll continue to be rewarded for their hard work.
According to a recent LinkedIn report, compensation is the number one priority for today’s jobseekers. But without regular pay reviews, it’s hard to know whether your salaries are actually as competitive as you think they are. When you do conduct regular reviews (and talk about this in your employer branding), it also shows potential recruits that you’re committed to paying them fairly for the long term — not just flashing a big number to get them in the door.
Improved employee engagement
Employees who feel their contributions are valued are far more likely to feel motivated and engaged. And one of the best ways to show them what they mean to your organisation? Demonstrate your ongoing commitment to fair and competitive compensation with regular salary reviews.
When employees are motivated and engaged, they’re also more likely to do their best work. In fact, a Gallup study from 2023 found that organisations with top-quartile employee engagement levels were 18% more productive than those in the bottom quartile. Put simply, conducting regular compensation reviews puts you on the path to a more productive workforce and a more profitable operation.
How many companies perform regular compensation reviews?
Just in case it’s not clear by this point, we’re big believers that conducting regular compensation reviews is a must for ensuring fair and equitable compensation — and all the benefits that brings. But do most companies agree?
Here’s what our survey respondents said when we asked them about their compensation review cycle:
Did you run a compensation review in the last 12 months?
Do you have a compensation review planned in the next 9 months?
Our survey found that the majority of companies (74.8%) ran a compensation review in the 12 months to October 2023. An even higher number (87.8%) plan to run one in the next 9 months.
As these results show, most businesses are conducting compensation reviews at least once a year. However, our survey also found that around a quarter of respondents have recently changed the frequency of their reviews, with most of those (15.4% of total respondents) saying they’re now doing them more often.
Conducting compensation reviews every six months (or more!) allows companies to be very reactive to market changes — which means they can be sure they’re always paying employees what they’re worth. It also allows for rising stars to quickly move up the pay scale, which is quite common in startup environments in particular.
Whether or not you decide to conduct them more regularly, running a compensation review at least once a year is crucial, in our opinion. After all, it’s the only way you can make sure your salaries are still fair and competitive — and avoid losing your top employees to more proactive companies.
Easily perform seamless compensation reviews with Figures
You get the picture: compensation reviews are vital if you want to attract, retain and engage the best talent, and pay every one of your employees what they deserve. But there’s no denying that they’re also a lot of work.
Like anything else though, compensation reviews get a heck of a lot easier if you have the right tools at your disposal. And that means Figures: the comprehensive compensation platform built on real-time, accurate market data from across Europe and beyond.
One of the most essential parts of the compensation review process is defining your budget. And exactly what this process looks like is different for every organisation, because your overall compensation philosophy should underpin it. That said, there are some guidelines and standard practices that most companies abide by — read on to learn more.
How Compensation Reviews Impact Your Company Culture (and Vice Versa)
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.