August 20, 2023

Orchestrating a Seamless Compensation Review in Four Strategic Steps

Cheryl Goh, Product Marketing Manager

Orchestrating a Seamless Compensation Review in Four Strategic Steps


Every enterprise, irrespective of its size and nature, recognizes the critical role that a seamless compensation review plays in maintaining employee satisfaction and business profitability. Devising a strategic plan to conduct these reviews successfully is not an effortless task. However, we will elucidate a four-step approach to smoothing the compensation review process, from preparation to implementation and follow-up.

Step 1: Detailed Planning and Preparation

Compensation reviews must be guided by a well-crafted plan that combines knowledge of your organization's compensation policy, employees' performance reviews, and current market standards. Setting clear objectives for the review from the outset will ensure that the process remains focused and fair.

Understanding Compensation Policy

Comprehend the nuances of your organization's compensation policy and consider how it aligns with your current business strategies and the organization's long-term objectives.

Reviewing Employee Performance

Correlate employee performance with the compensation package. This step will aid in acknowledging those who have shown outstanding performance and determining the increments for individuals who have met their targets.

Considering Market Standards

Staying updated with market standards for various job roles is paramount. This information will help you in establishing a competitive compensation structure that is balanced between internal equity and external competitiveness.

Setting Clear Objectives

Determining the primary objectives of the compensation review—whether to increase employee motivation, reduce turnover, or address pay equity issues—will guide the subsequent steps of the process.

Step 2: Conducting a Comprehensive Compensation Analysis

The second step of the compensation review process involves an in-depth analysis of current compensation structures, taking into account the hierarchical order, and benchmarking against external standards.

Analyzing Current Pay Structures

Review the existing pay structures in your organization, highlighting the salary ranges for different positions. This will help in identifying any existing discrepancies or areas that may require adjustment.

Considering Organizational Hierarchies

Assess the hierarchy within your organization and how pay is allocated across different levels. This ensures that the compensation structure reflects the job level and complexity, maintaining fairness throughout the organization.

Comparing with External Pay Standards

External benchmarking is a critical aspect of compensation analysis. By comparing your current pay structure with industry norms, you can ensure your organization's packages are competitive.

Conducting Job Evaluations

Perform job evaluations to accurately gauge the worth of each role in your organization. This information, along with external benchmarking data, will provide a robust basis for compensation decisions.

Step 3: Formulating an Effective Compensation Strategy

The third step requires establishing salary bands, considering performance-based pay, contemplating employee benefits, and creating a rewards and recognition system.

Establishing Salary Bands

Based on the collected data, set salary bands for each position in your organization. These should reflect both job value and market standards to ensure competitiveness and internal equity.

Considering Performance-Based Pay

Implementing a performance-based pay system can boost employee motivation and foster a culture of high performance. It can also help you in rewarding your top performers in a quantifiable manner.

Contemplating Employee Benefits

Beyond the basic pay, consider various employee benefits like insurance, retirement plans, or education assistance. These not only add to the overall compensation package but also contribute significantly to employee satisfaction and retention.

Creating a Reward and Recognition System

A robust reward and recognition system can be an effective way to motivate employees and acknowledge their hard work. This could range from bonuses and profit sharing to non-monetary recognitions like certificates or public acknowledgement.

Step 4: Implementing and Communicating the Compensation Plan

The final step includes implementing the plan, maintaining transparency, providing clear communication about the process, and gathering feedback.

Implementing the Plan

After careful planning and analysis, implement your compensation strategy. This should be done in a phased manner, with room for adjustments based on real-time feedback.

Ensuring Transparency

Maintain transparency throughout the process. Sharing the criteria and methodologies used to determine compensation changes can eliminate potential misunderstandings and boost employee trust.

Providing Clear Communication

Effective communication is the cornerstone of a successful compensation review. Clearly explain the new compensation structure to your employees and ensure they understand how it ties back to their individual performance and the organization's objectives.

Gathering Feedback

Finally, collect feedback from your employees regarding the new compensation strategy. This will help you identify any gaps or issues that may need to be addressed in the next compensation review cycle.


By meticulously following these four steps - planning, analysis, strategy formulation, and implementation, your organization can conduct a smoother compensation review. Such a process will not only ensure fair remuneration but also contribute to improved employee satisfaction, better performance, and ultimately, a more successful and profitable business.