Go out on a limb: 5 questions to guide your compensation budget approach

It’s our favorite time of year – performance reviews are complete, organisation results are in, and compensation has been awarded. Well done, you made it through another year! Now, it’s time to take a quick breath……and start the process all over again.

But before you keep your compensation process the same as it is year after year – plan, deliver, rinse, repeat – take a moment to debrief last year and consider whether your current approach is the right one for the new year and your organisation.

Let’s start with one of the first considerations in the pay cycle: budgeting. To determine the best approach for 2017, ask yourself these five questions:

1. Are you looking at the forest?

As your organisation evolves, your compensation planning should evolve with it

Just like the old adage, sometimes we don’t see the forest for the trees when it comes to compensation planning. We often times get bogged down in the tasks involved in the day-to-day compensation cycle and don’t pause to look at the big picture. As your organisation has evolved, has your process stayed the same? Does a top-down or bottom-up budgeting approach make the most sense? Is your current process still the right fit and what improvements you can make this year?

2. Has your company performed the same across the board?

Take a sincere look at your organisation. Chances are, performance outcomes vary – that’s the nature of the game! If you want to target areas of your business that are critical to success, a top-down budget may be the right move for you. A top-down strategy can incorporate business leaders’ participation in the budget allocation process or centralize control within HR.

Whether top-down or bottom-up, when it comes to spending the budget, make sure your managers have a clear understanding of your corporate compensation strategy. If they understand the bigger picture, it’s easier for them to align to and communicate to their teams.

3. Do your managers have the expertise to make appropriate pay recommendations?

Managers have clear insight into what and who they need to be successful

Your managers are the closest people to your employees. They have clear insight into what and who they need to be successful. However, if they don’t understand the big picture, or don’t have the expertise to reward fairly, that’s a problem. If you’re going to put that responsibility on your managers, make sure they’re armed with the knowledge and software.

To be successful – accurate employee information, clear compensation award guidelines, and insight into what performance ratings warrant what increase. This will ensure you keep your top performers without breaking the bank!

4. How well can you predict performance in the upcoming year?

Some of us better forecast than others – based on our organisation, industry, and history in general. If you have a good idea of how the organisation and your employees will perform in the upcoming year, bottom-up may be the route for you. If not, you may want to plan for a top-down budget where you and your business leaders can directly allocate the budget where it aligns with business strategy and performance.

5. Do you have software that can simplify the process?

In both top-down and bottom-up budgeting models, compensation planning software can be a tremendous help to both managers and employees. It can equip managers with the information they need to deliver the right rewards, to the right employees, while staying aligned with the organisation’s compensation strategy. The right HR software can create transparency so employees better understand their pay.

Regardless of the approach to compensation design you choose, make sure you go in to this year’s budget cycle with your eyes wide open. Remember, there are lot of valuable lessons to be learned amongst the trees.

About Jennifer Kelly

Jenn Kelly is a Product Leader at Willis Towers Watson, responsible for the vision, strategy and roadmap for Willis…
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