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Compensation Planning – A New Twist on an Old Recipe

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Todd Black
on March 21, 2016

My wife has a wooden box that holds her 3x5 recipe cards perfectly in place and she values it, at times I think, more than she does me, her children, or anything else.  We’ve moved quite a few times over our marriage, and that wooden box always finds itself specially wrapped and cared for no matter the distance.  That little wooden box has squeezed into its frame all the cooking recipes from her grandmother and past generations of her family.  The words on some of the cards are hardly legible after all of this time, and she has to take a pen and go over them to make sure she can still read them.  The recipes themselves are a great plan for an amazing meal, but without my wife, or someone willing to go through the process of putting the pieces together and following the steps properly you will never have a great dish to enjoy.  After making some of the dishes repeatedly the process does get easier and the recipe card is available if you forget something.   

Those recipe cards make me think of repeated processes, and annual compensation practices in particular. There tends to be a recipe, or set of collected guidelines that most compensation managers and CFOs adhere to that were written long ago and stuck in a box for safekeeping.  They pull it out constantly, dust it off, and refer to it over and over, but interestingly enough the process seems to never change.  Compensation departments have changed some of the calculations and some of the rules over time, but the overall compensation cycle “recipe” seems to remain untouched, based on either financial obligations, reporting to boards, shareholders or communication to employees. 

When we look at all the pieces of the annual compensation recipe, we find the following steps and ingredients:

Step 1

Calculate and deliver actual prior year short and long-term award payments

Step 2

Review and Improve Salary Plans

Step 3

Establish current year’s incentive plan measure and targets

Step 4

Ongoing Job analysis, job pricing, survey participation

Step 5

Test new plan review against company strategy (Review Pay & Performance Linkage)

Step 6

Review market trends in pay and finalize salary budgets with incentive design changes

Step 7

Kickoff Performance Management & Salary Administration processes

Step 8

Merit and Incentive award recommendations

Step 9

Salary changes sent for approval

Step 10

Set goals and targets for next year’s short & long term awards


The market would like nothing better than to see CFOs and compensation professionals change up the recipe and create a process that allows for flexibility, forward thinking, and financial modeling in their annual compensation planning.  Think of the compensation recipe above and how you could change it to enhance the outcome you would like see each year. A great chef will change up or tweak a recipe from time to time with certain spices to bring out specific flavors.  Likewise, compensation departments can change up or tweak their compensation recipes or processes to provide new outcomes as gaining higher employee engagement rates. Retaining top performers, being prepared ahead of time for reporting to boards and senior level executives, and maintaining an ongoing collaborative relationship with employees and Finance while controlling costs are all potential positive outcomes from switching up your compensation planning.

So how do you start changing up the recipe? How can technology help compensation departments become more flexible when it comes to your annual process?  Are there any ways compensation managers and CFOs can use the tools available today to be more proactive in the planning process, and work ahead if possible? Is there a way to put the company’s data in the hands of the right people to complete budget modeling to get ahead of the curve?

To answer those technology questions, you have to know whether your compensation department is ready to embrace flexibility, to complete some things out of order, deviate from the step-by-step recipe still accomplish your overall goals.  There are tools available today that allow compensation departments to gather their budget data, plug it into a compensation cycle, analyze their plan with all participants, and not publish it for review or approval – empowering your team to shake things up and see how it tastes.  Spreadsheets aren’t needed anymore for calculation corrections and modeling; with the right solution, compensation managers can input future budgets, insert various modeling percentages to see how it affects the overall budget, and even break it down by department or work unit. 

The best compensation management solutions take that flexibility a step further and tie in the ability to perform continuous rewards throughout the year, empowering managers to see how their budgets are fluid and allowing them to provide spot bonuses to retain top talent when needed. Lastly, these solutions add global capabilities that would help managers and compensation departments aggregate the different global sites and see them hierarchically in one dashboard. These small tweaks don’t radically change your compensation planning process, but they can bring radically better outcomes for your entire organization.

It seems that most organizations would like to or are trying to move to a new way performance review structure hat allows them to administer their reviews or check points with employees throughout the year, and not have it scheduled on an annual basis that potentially holds up compensation cycles and increases.   Executives and managers agree that their lives would be easier if they could review employees’ performance throughout the year and provide compensation increases as needed, continuously.  They would be able to work and react to situations in the moment, which is a more collaborative way to work, and allows them to communicate more effectively to employees and provide more information when needed. 

In the end, compensation departments and CFOs need to be more fluid with their planning, budgeting, and analysis.  It can be done; it’s just a matter of changing the paradigm to which they’ve adhered for years.  With PeopleFluent Compensation, everyone has visibility into their compensation data, the ability to analyze it anytime throughout the year, and provide the right group of employees with continuous reviews and rewards to retain great talent.  Spice up the old recipe; deliver a new compensation dish to your organization that everyone will love.

If you’re ready to see how PeopleFluent Compensation can empower you to be more flexible and effective in your planning and execution processes, join us for a demo of our award-winning solution this Thursday, March 24th

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