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What do compensation reviews really cost?

The Aeqium Team

Calculating the impact of compensation review cycles

Have you ever measured the time your business invests in compensation planning? It’s a process that impacts every level of your organization, from the ground floor to the executive suite.

  • HR teams preparing and administering the cycle
  • Managers reviewing their employees and making recommendations
  • Leadership reviewing the recommendations and requesting changes as needed

HR pros are painfully aware: managing these reviews manually is a monumental time-sink. But making the case for better tools is a tough sell without the right metrics at your disposal.

That’s why we dug in to understand exactly how much time the typical company pours into compensation reviews—time that could be powering other critical tasks.

How much are companies investing in compensation reviews?

We surveyed HR leaders and line managers from 60 companies about their compensation reviews…

The main theme? Companies are investing a ton of time in these reviews – often much more than they realize.

We found that, on average, people teams and their finance partners spend 6.5 weeks just preparing for a cycle:

  • Downloading data from HRIS, Performance Management, Equity Management, and Payroll systems
  • Combining data in spreadsheets and implementing formulas and custom logic
  • Creating versions of the spreadsheet for each manager 
  • Emailing these sheets out to their reviewers

6.5 weeks is just the average. A whopping 14% of people teams say they take more than nine (9!) weeks to prepare for a cycle.

It’s a lot of manual effort for people teams (and creates a lot of risk), but this is only the tip of the iceberg.

The costs really skyrocket when you consider how much time your managers (read: “your most expensive employees”) spend on reviews. 

In fact, 67% of surveyed senior managers who use spreadsheets for compensation planning reported losing a ‘moderate’ to ‘considerable’ amount of time that could be dedicated to their critical projects.

So, how can you calculate the true cost of a cycle? Let’s break it down…

How to calculate the cost of a compensation review cycle

How much time does a compensation cycle take away from other vital tasks? 

Let’s run some quick numbers for 1.) managers and 2.) the people team:

Managers lose lots of time to comp reviews

Let’s say you work at a company with 500 employees…

Of that 500 employees, let’s say 100 are managers.

If each manager spends five hours per week reviewing employees and collaborating on comp recommendations for three weeks, that will result in 1,500 hours invested in one cycle. 

This is a significant opportunity cost for your business! Your most senior, strategic, and highly paid employees spend ~1,500 hours away from their mission-critical tasks during each cycle.

HR and Finance spend lots of time manually administering comp reviews

Let’s say your current process requires three people across HR and Finance to manage. 

If these employees spend 8 hours per week reviewing progress and working with managers during a 12-16 week cycle (from cycle preparation through employee communications), you’ll spend ~300-400 hours per cycle.

This is time your people and finance teams could be focused on strategic, value-added work. 

By the way, this assumes your process is so locked down that you make zero mistakes that require extra time finding and correcting.

Manual compensation reviews incur significant (AKA “scary”) risks

Suppose you’re allocating a merit budget of $1 million via a manual process.

This carries an enormous risk and leaves you with tough questions:

  • Is it possible you overpaid or underpaid someone?
  • Did you properly convert currencies for international employees?
  • Could someone have mistakenly changed your formulas along the way?
  • Did you accidentally send sensitive compensation information to the wrong person?

And the biggest question: Do you know you applied such a significant investment appropriately? 

The more manual a process is, the more room we create for human error.

When we manage massive budgets that impact our employees' livelihoods, minor human errors can mean significant issues for businesses and their employees.

What are people teams doing to streamline compensation planning and reduce costs?

People teams that recognize these costs are increasingly turning to purpose-built compensation planning software to:

  • Integrate their compensation data and automate cycle prep
  • Launch guided workflows to help managers complete reviews quickly
  • Centralize communications about comp to improve collaboration 

Ready to see how this looks in practice?

Here are three examples of people teams removing lost time, risk, and frustration from their compensation planning:

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