The State of Compensation Review Management 2024

Published 1.3.24

Contents

• Executive Summary →
• Who We Interviewed →
• Compensation Review Process and Frequency →
• Managerial Experience and Efficiency →
• Challenges and Areas for Improvement →
• Aeqium’s Recommendations →

Executive Summary

The HR leaders and non-HR leaders we surveyed recognize that compensation review cycles are critical to improving employee retention and satisfaction. Despite this shared understanding, we found that companies are running compensation reviews far less frequently than they think is necessary to retain and motivate top talent.

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We interviewed HR leaders and people managers from 60 companies to find out why they thought compensation review cycles were important, where they struggled, and what could better enable them. Our research revealed three key insights.

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1. Everyone agrees compensation cycles are important, but they struggle to manage them efficiently

HR teams and managers understand the importance of regular compensation reviews as a tool for employee retention and satisfaction. However, the execution of these reviews often lacks efficiency. The survey data from HR managers reveals that the majority (58.34%) conduct compensation reviews only once a year, with a significant reliance on spreadsheets (58%) and HRIS systems (68.33%). 

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The preparation for these cycles is time-consuming, with 36.67% of HR teams taking 4-6 weeks and 30% taking 7-9 weeks. Despite recognizing the potential benefits of frequent reviews for retaining top talent (96.67% agreement), the process is hampered by inefficiency. Managers rate their current processes as moderate at best, with several citing them as manual, labor-intensive, and lacking in consistent application across different business units.

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"Successfully completing a compensation review cycle helps with building trust with team members and boosting the overall morale of employees and the team in general. It also helps with employee retention.” - Head of Engineering

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2. Poor execution is a symptom of poor workflows and lack of insights

The challenges in executing compensation cycles effectively stem from poor workflows and a lack of insightful data. The biggest challenges reported include coaching managers through the review process (80%), collaborating with leadership on compensation decisions (63.33%), and preparing necessary data (60%). 

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Managers express frustration with the lack of comprehensive and easily accessible data to make informed decisions about employee compensation. They also highlight the struggle with consistency across different teams and regions, and the difficulty of aligning compensation with market standards due to outdated or insufficient data.

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3. There is a need for enhanced tools and processes for effective compensation management

There is a clear need for more efficient tools and processes to address these challenges. The data suggests a shift towards more automated, integrated compensation management systems that reduce reliance on manual spreadsheets and provide real-time, comprehensive data insights. 

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67% of managers who rely on spreadsheets for some or all of their compensation planning report losing a moderate to considerable amount of time that should be dedicated to critical projects. In contrast, only 27% of managers who have ceased using spreadsheets for this purpose experience similar time losses.

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This would involve streamlining the compensation review process, improving training and support for managers, and enhancing communication with employees about compensation decisions. Additionally, more frequent reviews, aligned with performance management and market benchmarks, could enhance employee retention and satisfaction. 

Who We Interviewed

We spoke to HR leaders and non-HR managers from 60 organizations.

• Each HR interviewee was manager-level or above and has managed the preparation and execution of formal compensation cycles at least 2-3 cycles

• Each non-HR interviewee was manager-level or above and has participated in a formal compensation cycle where they reviewed and made recommendations for salary increases for their team members at least 2-3 times

• All interviewees work in organizations ranging between 500 and 10,000 employees and are located in the United States, United Kingdom, or Canada

• Interviewees were from industries including software, financial services, retail & eCommerce, telecommunications, consumer goods, biotechnology, and more.

The interviews generated qualitative and quantitative data. This enabled us to arrive at more detailed conclusions than the numbers alone. We have shared these insights in the key takeaways section for each question and a recommendations section at the end of the report.

Compensation Review Process and Frequency

First, we wanted to identify how frequently each of these organizations ran formal compensation reviews in 2023.

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How often does your company run compensation review cycles?

Second, we aimed to explore the potential impact of more frequent compensation reviews on employee retention, particularly among top performers. 

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This inquiry was crucial in understanding whether increasing the frequency of compensation evaluations could significantly retain key talent within these organizations.

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Do you believe that reviewing compensation more frequently has the potential to enhance employee retention, especially for top performers?

“Healthcare is becoming highly competitive, so our review process must be done more often.” - Manager, Human Resources Systems

“We are not given enough opportunities to review compensation to improve employees' situations and improve retention.” - Director of Marketing

Third, we wanted to understand how long each HR team takes to prepare a compensation review cycle, including time spent preparing employee data and launching the process to managers.

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How long does your team take to prepare for a compensation review cycle?

Key Takeaway 

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HR teams and managers agree that more frequent compensation cycles would help retain high-performing employees. However, 93.34% are running cycles only 1-2 times per year. 

It’s no surprise why the process isn’t run more frequently – On average, it takes HR teams 6.5 weeks just to prepare for a cycle, with 62% of respondents highlighting the urgent need for better data management and system integration. This includes pulling data more efficiently, using accurate data without manual manipulation, and having a single platform for edits and comments.

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Managerial Experience and Efficiency

We wanted to know what tools and processes teams use to manage their compensation review cycles and how efficient they perceive them to be.

We asked about:

• The tools/platforms they used
• How easily they could access data
• How efficient the review process was from the manager’s perspective
• How efficient the review process was from the HR team’s perspective

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What tool(s) does your company use to manage compensation review cycles?

Next, we wanted to understand whether the non-HR managers had access to the data they needed to confidently make compensation recommendations.

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On a scale from 1 to 10, how would you rate your ability to find data and information needed to confidently make decisions about employee comp?

“My biggest frustration is not feeling like I have a full view of information I'd like to have when thinking about compensation. I have a decent view within the immediate team, but don't have a good sense of similar roles in other departments and have almost no information on outside companies/firms.”
- Director of Operations

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Similarly, we wanted to understand how the managers perceived the process in terms of overall efficiency.

On a scale from 1 to 10, how would you rate your current compensation cycle process in terms of efficiency?

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Finally, we wanted to understand how HR teams rated the efficiency of their compensation cycle process.

On a scale from 1 to 10, how would you rate your current compensation cycle process in terms of efficiency?

“Our process is not highly efficient or highly effective. We operate very much in reaction mode, and we don't have great tools to stay up to date on this.”
- Human Resources Director

Key Takeaway 

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The majority of teams are using HRIS tools and spreadsheets to manage compensation review cycles – but this results in mixed effectiveness (at best). While some HR professionals report relatively high efficiency with their systems, many struggle with manual, labor-intensive processes. 

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Challenges and Areas for Improvement

We asked respondents what their top challenges were.

The following were the biggest challenges for HR teams:

• 65% of respondents stated their most significant frustration is the time-consuming nature of manual processes involved in compensation review cycles. This includes managing spreadsheets, ensuring data integrity, holistically analyzing planned changes, and the overall time investment required.

• 54% of respondents cited the lack of managerial engagement and consistency in the process. Respondents are frustrated with managers not completing reviews on time, making last-minute changes, and the lack of a unified approach to compensation.

• 42% of respondents also expressed frustration with aligning compensation review cycles with performance reviews. They mention the difficulty in ensuring that compensation adjustments reflect the entire year's performance and the gap between performance reviews and compensation outcomes.

"Managing the spreadsheets is my biggest challenge. Keeping them accurate and up to date with changes and not causing any formula errors takes a lot of time."
- Director of Human Resources

The following were the biggest challenges for non-HR managers:

• 33% of respondents expressed difficulties in obtaining accurate and up-to-date data to inform compensation decisions. This includes challenges in modeling different scenarios, finding average compensation for similar jobs (especially in rural areas), and accessing comprehensive data on peer groups.

• 29% of respondents are facing challenges with the efficiency and effectiveness of the compensation review process. This includes dealing with outdated systems, the need for a centralized data repository, and the cumbersome nature of using spreadsheets for complex calculations.

• 25% of respondents find it challenging to navigate company policies and budget limitations that restrict the ability to offer competitive and fair compensation. This includes adhering to bell curve policies, dealing with limited merit increase budgets, and regional inconsistencies.

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Next, we wanted to understand which challenges HR teams found to be the most pressing.

In your opinion, what aspects of your compensation review cycle process most urgently need improvement?

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• 62% of respondents highlighted the urgent need for better data management and system integration. This includes pulling data more efficiently, using accurate data without manual manipulation, and having a single auditable platform for edits and comments.

• 50% of respondents pointed out the need for improved manager training and communication. This includes educating managers on compensation practices and managing compliance, ensuring they can explain the reasoning behind pay increases, and improving collaboration between HR and managers.

• 38% of respondents expressed the need for the compensation process to be more responsive to market changes. This includes quicker adjustments to competitive compensation and better use of benchmarking data in determining salary increases.

“Walking managers through the process over and over again is a challenge. If I didn’t have to do this so much, It would free up my time to collaborate more and discuss the actual recommendations rather than the system process”
- Human Resources Manager

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Finally, we asked managers to describe the impact compensation review cycles had on their team's productivity during a cycle.

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How does the compensation review process affect the time your team dedicates to critical projects?

For managers using spreadsheets for part or all of their compensation planning, 67% said they lost a moderate or considerable amount of time. For those who did not use spreadsheets, the number was only 27%.

Key Takeaway 

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The primary challenges and areas for improvement in compensation review cycles are centered around inefficient manual processes, managerial engagement inconsistencies, and alignment with performance reviews. 

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HR teams are particularly burdened by the time-consuming nature of managing spreadsheets and ensuring data integrity, which 65% of respondents noted as their top frustration. For non-HR managers, the struggle lies in accessing accurate data for informed compensation decisions and navigating company policies within budget constraints. 

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Across both groups, there is a strong call for improved data management systems, better manager training, and a more adaptable process to market changes and managerial needs. These challenges highlight the need for streamlined, integrated systems and enhanced communication and education strategies to optimize compensation review cycles.

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Aeqium’s Recommendations

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1. Prioritize Data Integrations and Automate Cycle Preparation

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The cumbersome nature of manual processes, reliance on spreadsheets, and the need for multiple system inputs are a struggle for 58% of the HR leaders we spoke to.

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HR teams are spending 6 weeks on average downloading and combining data from multiple HR sources to prepare compensation cycles. This manual process is error-prone and makes it impossible for most teams to stay agile when reviewing and updating compensation.

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“I would rate our current process a 2 out of 10. It is very time-consuming to gather the data into spreadsheets. Examples of issues include data freezes in the HRIS to ensure data matches within the spreadsheet, errors in spreadsheets because they've been manipulated too much, and difficulty making edits cross-functionally on one document. The list goes on.”
- Director HRIS, Analytics & HR Ops

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2. Enable Reviewers with Guided Workflows and Relevant Insights

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80% of the HR leaders listed “Coaching managers on the compensation review process” as among their biggest challenges.

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Many of them felt that managers didn’t take the process seriously, citing that their managers were constantly asking the same questions repeatedly, were “rubber stamping” approvals, and needed to be chased to complete their reviews.

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However, the managers we spoke to perceived a successful compensation review cycle as a key factor in retaining employees, ensuring their satisfaction, and increasing team performance. They believed that fair and timely compensation reviews make employees feel valued and less likely to seek opportunities elsewhere.

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When asked to rate the efficiency of the compensation process or their ability to access key data, managers made it clear that they’re lacking the tools they need to perform reviews to the best of their ability.

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Creating consistent, guided workflows for managers and prioritizing data availability are key to running agile, efficient compensation processes.

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“The biggest frustration is not providing data for managers to make the right decisions.” - Human Resources Director

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3. Increase Frequency and Flexibility of Compensation Reviews

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Given that 90% of respondents see the value in more frequent reviews to stay competitive, HR teams should consider implementing more frequent compensation reviews. This approach can better align with rapidly changing market conditions and provide timely rewards to high-performing employees. 

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Frequent reviews also allow for quicker adjustments in compensation to reflect performance and market trends, addressing the concerns of 38% of respondents who need more responsiveness to market changes.

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HR teams should also consider structured "off-cycle" processes tailored for high-performing employees, teams critical to company objectives, or those found to be compensated below market rate. These reviews allow for targeted, timely rewards and adjustments, further motivating these groups and reinforcing their value to the organization. This proactive approach addresses market competitiveness and fosters a culture of recognition and responsiveness. 

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“Being that the review process is once per year, it's difficult to reflect on an employee's contributions over a 12-month calendar period. I think it would be easier if HR collected employee insights quarterly so that when it's time to review everything, I can have all the information readily available. The current process is broken as it allows only adjustments within the cycle or ad-hoc if it implies salary corrections from the previous managers.”
- Director, Product Marketing

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About Aeqium

Aeqium is the compensation planning platform that enables people teams and managers to run accurate, efficient compensation cycles without risk, lost time, or frustration.

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People teams at Warby Parker, Braze, Hopper, Mixpanel, and more use Aeqium to run faster, more frequent cycles with automation, collaboration tools, and guided workflows for managers.

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Compensation leaders can compare Aeqium to their current process with a free compensation cycle build. See it live in less than one business day and test it with your HR team and managers when you request a demo here.

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Aeqium has been really flexible in meeting our needs for our compensation cycles. It’s highly customizable, the configurations are easy for us to manage on our own, and customer service has been really, really excellent.
- Angele Welch, Director of Total Rewards Warby Parker