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Compensation 101: Creating Pay Policies and Processes

Topics: Comp Strategy

This is an excerpt from our new ebook “Comp 101: A Beginner’s Guide to Compensation Management.” Download the full guide here.

Now that you’ve planned ahead, identified your talent markets and data sources, completed benchmarking and established pay ranges, it’s time to create the policies and processes that help ensure that your plan gets carried out as you’ve intended.

Decide on the Right Level of Transparency

Before you go too much further, decide how much information about pay and pay decisions you intend to share with your organization. Once you decide to start sharing information, it’s not an all-or-nothing deal. There’s a whole spectrum of information you may consider sharing, from just an employee’s own pay to the results of the market study to publishing your pay ranges.

pay policies

Make clear choices about what you plan to share about each aspect of your compensation plan, including your philosophy, strategy, market data, pay ranges, policies and processes.

After you determine the right amount and type of information to share, be consistent. Sometimes information shared inconsistently with and by managers can disrupt the sense of fairness that your employees feel about their compensation.

Complete Your Policy Checklist

You should have some high-level policies in place to help get everyone on the same page and following the same rules. Your employment lawyer should review them for compliance and to make sure they appropriately protect the organization. Aim to build policies that align with and reinforce the culture of your organization.

Here are some questions that your policies should answer:

  • How and when are merit and/or market increases allocated?
  • How will we handle green-circled and red-circled outliers?
  • What will happen to pay in the case of promotion, demotion or transfer?
  • How is the hiring range determined for a position?
  • What are the different types of compensation and which employees are eligible for which types?

Consider Processes to Improve Efficiencies Around Compensation and Compensation Planning

Whether you have formally written processes or informal guidelines, there are typical compensation tasks that tend to be repeated. To ease your comp woes, make sure you document the steps for the following processes:

  • Make a new hire offer
    • Who can make offers?
    • Who creates the hiring range?
    • Are there approvals needed for going outside the hiring range?
  • Add a new job
    • Who suggests the new job?
    • How is the business case for the new job created and who does it?
    • Who drafts and approves the job description for the new job?
  • Promote people
    • How and when do promotions happen?
    • Who approves?
    • What happens to pay in the case of promotion? Is there a minimum percent increase? Do all who are promoted get at least to within range of the new job?
    • How and when are promotions communicated to payroll? To the employee? To other team members?
  • Determine pay increases
    • What are increases based on? Market? Merit? Experience? Skills? Results? Some combination?
    • When are increases calculated? And what is the timeline for the full increase process?
    • What is the manager’s role in setting or recommending increases? Who approves?
    • When and how are increases communicated? By whom? Does HR draft talking points?
    • Are out-of-cycle increases done, and if so, under what circumstances?
  • Calculate incentive payouts
    • When are goals or other measures created and finalized?
    • How often are they measured and evaluated?
    • What is the frequency of payout?
    • Who approves?
    • Who communicates, when and how? Does HR draft talking points?
  • Complete the market study
    • When and how often do you complete a full market study? (hint: before budgeting season)
    • Are there some jobs or functions that require more frequent market review, and if so, what is the process for that?
    • How, will and when do you communicate the results of the market study and to whom? With how much detail?

Again, you may decide not to fully document all of these processes, but it’s a good idea to consider what you will do in each situation so you can be consistent in your application of your policies as much as possible. Consistency and compliance go hand-in-hand.

Before you move on to the next step …

Review your work thus far and make sure your plan is fully fleshed out — because we’re about to put it into practice!

Stay tuned for the next blog in the Comp 101 series on implementing your compensation plan. For all the steps and takeaways, grab your copy of the full Comp 101 guide today!

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Where do your pay processes get bogged down? We want to hear from you. Share your story in the comments.

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