Compensation-Planning: Best Practices and Trends

BY Mary Jones | December 17, 2024

When you think about compensation planning for your organization, what comes to mind? If it’s not approached strategically, it can harm your business. HR managers often face the challenge of balancing company budgets with the need to offer competitive pay scales. Research from Visier, a platform that helps businesses and employees by combining people and business data to provide insights, found that a failure to identify and quickly address wage compression issues in teams can lead to faster resignations.

Business News Daily defines compensation planning as encompassing all the compensatory elements of a company’s strategy, including employee wages, partner discounts, and raise schedules. These compensation decisions impact more than just finances; they shape an employee’s attitude toward the company, influence their work effort, and determine how long they stay with the organization.

“When pay is adjusted quickly the length of tenure is significantly longer,” said Sean Luitjens, general manager, total rewards at Visier. Luitjens spoke during a From Day One webinar about “Compensation-Planning: Best Practices and Trends,” moderated by journalist Emily McCrary-Ruiz-Esparza.

Visier research revealed that new employees who received a raise within their first month stayed with their company for an average of 31.5 months. In contrast, employees who received a raise within six months quit 1.8 times sooner than those with annual raises, and those who had no raise at all quit 2.3 times sooner. That’s why more compensation planning cycles are crucial for your overall company success.

Sean Luitjens, general manager, total rewards at Visier, led the webinar

Utilizing data analytics to identify key issues for your company enables informed decisions around pay. This process shouldn’t be rushed just to check a box. The advantage of having a tech and data strategy is clear: “When you start to break it down between the details, eligibility, budget, bonus LTI, and then try to take all that and create a pay philosophy, it’s exceedingly complex,” said Luitjens.

Organizations can leverage data analysis by tapping into various sources, such as performance reviews and sales targets. Building more data points and reference benchmarks allows for continuous improvement. The key is aligning this data with your business goals to inform pay decisions. Factors such as an employee’s role, performance, and tenure in the position should also be considered.

Managers must also gain the knowledge of compensation planning. If they cannot understand it, how can they execute and communicate it to their team? When you give them an anchor point, explain why you are giving them that number, says Luitjens. “Put yourself in a B2C marketing position and put on your UX hat, and start to work yourself back on how they would work through the process, rather than sending an Excel spreadsheet,” he said.

Luitjens ended with a summary of three compensation planning best practices, again emphasizing the importance of the manager experience in the process:

  1. Define your destination and the road there.
  2. Place manager experience at the center of delivering pay philosophy. 
  3. Create a cynical and ever improving data strategy.

“When it comes to compensation planning specifically, really place the manager’s experience at the center of delivering the pay philosophy.”

Editor’s note: From Day One thanks our partner, Visier, for sponsoring this webinar.

Mary Jones is a freelance writer out of Ohio. Her work is featured in several publications including The Dallas Express, NDash, and The Daily Advocate.

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