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The 4 Seasons of Compensation: A Review of the Annual Priorities

Posted on March 3, 2016
Cicely ClaytonWritten by Cicely Clayton | Email author

time-to-planI always get excited once February comes to a close and March rears its lovely face. I begin to notice the abundance of daylight, I hear talk of spring break plans and I even look forward to day light saving time despite that one sweet hour of sleep disappearing from my daily regimen. Around this time, I also reflect on all of the work that was accomplished during January and February and then turn my thoughts to critical goals that need to be met in order to have a successful and impactful year as a compensation professional. One thing I learned to do over the past 11 years while practicing compensation, was to slow down, identify the key objectives that need to be accomplished for the entire year and then break down the body of work into bite sized pieces in an effort to prioritize my work, and most importantly, maintain my cool.

Since we are on the eve of the dawning of a new season, I want to take this opportunity to share the essential compensation-related measures and objectives HR professionals should focus on during specific times of the year. Knowing what to anticipate and how to plan for what is coming next will lead to the management of a well-oiled and impactful compensation practice.

The 4 Seasons of Compensation: A Review of the Annual Priorities

Q1 Objectives

Like most HR professionals tasked with compensation related duties, the first quarter of the fiscal year can be quite stressful.

  1. Performance Management and Merit: I have always referred to Q1 as ‘game time’ for Compensation professionals. For many of our clients, the first quarter of the year encompasses rewarding for prior year company and individual performance. In order for the rewards process to effectively take place, there must be a convergence of efforts from HR, HRIS, Compensation, Finance, Payroll, IT and participation from all levels of employees in order to successfully pull off this event and make it meaningful and impactful for the organization. The efforts put forth from the executive team, HR and compensation are essential in ensuring employees receive performance related feedback and corresponding merit or incentive rewards.
  2. Incentive Plan Payouts: While performance management and compensation rewards processes take up the majority of what HR and compensation professionals do during Q1, simultaneously they also need to be thinking about the communication of any short or long term incentive plan changes. As business needs shift and change, so should the incentive goals and targets of any variable pay plans that are currently in place. Plan participants need to know this information as early as possible so they know where to focus their efforts as it relates to their defined performance goals.
  3. Incentive Forecasting: If that wasn’t enough, compensation professionals should also find time towards the end of the quarter to work with Finance or any other plan stakeholder to understand business results and year to date company performance in order to project the incentive spend. Providing your executive team and leaders with this information is critical. Taking such measures enables effective financial planning and management and enables the team to course correct where performance is lacking.

Q2 Objectives

  1. Reconnect with the Company and your Team: Now that Q1 has come to a close, and you are back from a well-deserved mini vacation, it is imperative you salvage some of the momentum from Q1 and focus your efforts on what I like to call business as usual compensation. During the early part of this quarter it is critical you reconnect with the rest of the HR team and shift back into being a normal team member. It is important you are intentional in this regard because while you were off calculating incentives, running reports and auditing the results of the pay process, significant events might have occurred that you were not able to give much thought to during Q1. While you reconnect, you should meet with Talent Acquisition, HR and OD to see if any systemic issues have cropped up that need addressing. I am sure the team missed your thought leadership and this is your opportunity to participate in collectively solving potential organizational issues.
  2. Participate in Compensation Surveys: Once you are up to speed with the latest issues, the inevitable must take place if your organization chooses to have a market competitive compensation structure. Yes, I am referring to the completion and submission of compensation survey information. No matter how many surveys you choose to participate in, this process is never easy, yet it is paramount in ensuring that your organization remains market competitive with its pay approach.
  3. Incentive Forecasting: The end of Q2 should serve as a moment for pause because that means half of the fiscal year is over, and the organization should have a very strong idea of how well the business is performing. Like Q1, you should take a moment towards the end of Q2 to forecast the potential incentive expense. Again, this allows leadership to communicate year to date results with their staff and make any necessary corrections to ensure incentive goals are on trend towards being obtained.

Q3 Objectives

  1. Compensation Training: Now that you are half way through the year and you are addressing the needs of leadership and the organization, compensation professionals should focus on gaining skills and knowledge to enhance the compensation practice at your place of business. You should take this opportunity to attend local seminars, conferences and networking events that will grow your compensation skillset.
  2. Incentive Plan Review and Design: Another key objective of Q3 is the review all of the incentive plans with various stakeholders to ensure the current design is effective and to start working through any plan design changes for the coming year. The organization should take this quarter to work through any material changes with a goal of getting executive buy in during the last quarter of the year.
  3. Job Description Review: Toward the middle to latter part of the third quarter, you should initiate the job description review process with HR and management to ensure all descriptions reflect the current duties and responsibilities for each unique and defined role. This will come in handy during the last quarter of the year.
  4. Merit and Performance Management Preparation: Before you close out Q3, performance management and merit planning should be at the forefront of your mind. Make sure you make it a point to connect with Talent Acquisition and HR so they fully understand the merit and incentive eligibility cut off dates for new hires and soon to be promoted employees.
  5. Incentive Forecasting: Like all of the other quarters, Q3 should conclude with yet another incentive expense projection. Running the numbers should give leadership a clear picture of organizational performance and will allow them to motivate their teams to put forth the necessary effort towards achieving their incentive goals.

Q4 Objectives

  1. Market Pricing Refresh: Experienced Compensation professionals know the last quarter of the year rivals the chaos experienced during the first quarter of the year. Smart planning and consistent execution are a must during these three critical months. Remember those surveys you labored over during Q2 and those revised job descriptions from Q3, well the survey results should be delivered during the early part of Q4 enabling the market price refresh for all of your defined roles. Again, ensuring your organization takes a market competitive approach on pay will ensure future victories when it comes to the new hire process and employee retention.
  2. Salary Planning: Next, your focus should turn to salary planning for the coming year. Depending on the surveys you participated in, you should be able to locate the salary increase trends for your respective industry amongst all of the survey data that was delivered to you. Sit with Finance and HR leadership to educate them on pay trends and balance that with the coming organizational objectives and the available pool of money for making this reinvestment back into the organization. This process involves the budgeting for projected new hires, promotions and equity adjustments for employees that are paid below the market.
  3. Incentive Plan Finalization: During the middle portion of Q4, you should sit with the incentive design stakeholders and Compensation Committee to finalize the plans, the plan documentation, and update your tools in preparation for coming plan year.
  4. Incentive Forecasting: The next item to address, which should be executed on a weekly basis, are the financial and incentive plan forecasts. You and Finance should be tied at the hip at this point with forecasting the final plan results and projected payout based on company and individual performance. The executive team should be well aware of how the organization is tracking against budget and the type of rewards season they should expect. As a reminder, all of your forecasts should be Compensation Committee ready moving into Q1.
  5. Define and Communicate Performance Management Cycle: Lastly, you should be working with HRIS and IT teams to ensure the performance management and merit systems are ready to go for the approaching year end or rewards process. Once your applications are in good working order, it is time to bring the rest of HR up to speed on the process, communicate the critical milestones to management and hold on tight because Q1 is just around the corner and the biggest compensation event of the year is on the horizon….again.

As you can see, there are several components and moving parts that comprise a successfully run Compensation practice, and getting it all done can be a daunting task; however having a plan in place and taking it one day and quarter at a time will result in impactful and momentous results for both Compensation and the entire organization. This is a lot of information to take in and plan for; however I find that my clients who have an established performance management process, a defined compensation structure, incentive plans that align to company strategy and a compensation philosophy that ties everything together are the ones who can navigate this issue without pulling out their hair!

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