What Most Employers Get Wrong About Compensation.
Year-end compensation conversations may still feel a few months away, but the decisions behind them shouldn't start in December.
Before managers sit down with employees to talk about raises, bonuses, or salary adjustments, employers have some important work to do behind the scenes. From setting a realistic budget to understanding the market and preparing managers for conversations that aren't always easy, starting early can make the process more thoughtful, consistent, and easier to communicate.
Here are four areas employers should be thinking about now.
1. Start With the Budget
Before deciding what individual increases will look like, employers need to understand what the business can realistically support.
Start by looking at the overall compensation budget for the coming year. Consider not only annual increases, but also potential promotions, bonuses, market adjustments, and any anticipated hiring that could affect payroll.
What can the business realistically allocate toward compensation increases?
Are bonuses or incentive payments part of a separate budget?
Are there anticipated promotions or role changes to account for?
Are there employees or positions that may require larger market adjustments?
Establishing the budget early gives leadership a framework for making individual decisions rather than working backward once compensation conversations have already begun.
2. Know Where You Stand in the Market
Last year's salary isn't necessarily the best benchmark for next year's compensation.
The market changes, roles evolve, and what was competitive when an employee was hired may not be competitive today. Before making compensation decisions, employers should have a sense of how key roles compare to the current market.
This can be especially important for positions that have become difficult to recruit for, employees whose responsibilities have significantly expanded, or roles that haven't been benchmarked recently.
It’s also worth looking internally. Are there inconsistencies between employees doing similar work? Has pay compression developed between newer and longer-tenured employees?
Compensation planning should consider both what the external market is telling you and what is happening within your own organization.
Make Sure You're Accounting for Legal and Compliance Requirements
Compensation decisions don't happen in a vacuum. Employers also need to understand the laws and requirements that may affect how they approach pay.
Depending on where employees work, that may include minimum-wage requirements, pay-equity laws, pay-transparency requirements, and other state or local compensation rules.
As you head into a new year, review upcoming changes that could affect your workforce and make sure your compensation practices, salary ranges, and processes remain compliant.
This is especially important for employers with employees working across multiple states, where requirements may differ by location.
4. Prepare Your Managers for the Conversation
You can put a great deal of thought into compensation decisions and still have the process fall flat if managers aren't prepared to communicate them.
Compensation can be personal, and employees will naturally have questions. Why did I receive this increase? How was the decision made? Why didn't I receive more? What would need to happen for my compensation to change in the future?
Managers shouldn't be figuring out the answers in the moment.
Before compensation conversations begin, make sure managers understand:
What decisions have been made and the reasoning behind them
What they can and cannot communicate
How to explain the company’s approach to compensation
How to respond to questions or disappointment
When to involve HR or leadership
Managers don’t need to have every answer, but they should feel prepared to have a clear, thoughtful conversation and know where to turn when questions come up.
Do the Work Before the Conversation
The actual compensation conversation may only take 15 or 20 minutes. The work that makes it a good one happens well before that.
Starting now gives employers time to establish a realistic budget, understand where compensation stands against the market, address compliance considerations, and give managers the tools they need to communicate decisions confidently.
Planning for year-end compensation conversations?
Triumph HR can help with compensation benchmarking, compliance considerations, manager preparation, and building a compensation process that works for your business.