How To Create A Compensation Plan In 3 Steps

How To Create A Compensation Plan In 3 Steps

The annual compensation planning cycle can strike fear in the hearts of even the most seasoned HR professionals. Or, if not fear, then certainly a generous amount of angst and stress.

Structuring a compensation plan is complex enough. When you add in the everyday life of a company, that’s when the real challenge begins. You’ll have to adjust for your company’s newly reorganized or promoted employees’ salaries, company holidays, managers’ scheduled PTO, multiple currencies, conflicting priorities, and changing business strategies, in addition to coordinating any major changes with payroll.

On top of that, you have to balance the expectations of leadership with the desires of the employees: Is the budget too small? Does the process take too long? Are employees being paid too much, or not enough? Annual compensation planning has a tendency to spark uncomfortable conversations on a number of different fronts.

At MorganHR, we’ve seen the stress that can come from building a compensation plan. As experienced compensation consultants, we understand the challenges that can arise during the process. We’ve helped numerous clients avoid a great deal of that stress by teaching them how to create a compensation plan the right way from the start.

If you’re approaching compensation planning season and you’re starting to feel that familiar sense of dread, start with this guide. The following is a brief primer on how to strategically and thoughtfully navigate compensation planning with minimal strife.

Alternatively, have our experts guide your compensation planning process! Contact MorganHR and ask about our consultation services.

How To Create A Compensation Plan Without Getting Lost In The Weeds

The keys to success are to start early and focus on what you can control. It’s best to start building your roll-out plan about four to five months before the planned launch. If your company adjusts compensation plans on an annual basis, this might mean you’ll spend almost half the year planning for next year’s changes.

That level of detail and planning might seem counterintuitive; after all, part of the difficulty of compensation planning is staying flexible when leaders change their minds about budgets or policies. However, the more effort you put into creating a structured plan of action, the more information you’ll have and the easier you’ll be able to pivot quickly when the winds change.

There are three steps to complete a robust compensation planning cycle:

1. Make a calendar.

Right off the bat, create a clear and organized schedule of important company dates. Write down each group of employees along with their payroll deadlines. These are the dates you’ll need to hit to allow a buffer period for changes to take effect, so you can pay these employees on time.

How to create a compensation plan: Make a calendar

A visual calendar is your best bet. It will help you more easily explain your reasoning to leadership when it comes time to present your plan. Don’t forget to include global holidays, planning weeks, approval dates, performance management, and leadership training on your calendar along with the payroll dates, as these factors will all affect the length of the process.

How to create a compensation plan: Make a visual calendar

2. Assemble your stakeholders.

There should be multiple people involved in the creation and implementation of a new compensation plan. Everyone in the organization anticipates the process, so why not bring them along on the journey?

Consider stakeholders as the organizational lens of activity. They will serve as guides to what may be around the corner and help you put your plan into action within the various departments throughout the company. If there are any sticking points or conflicting priorities in your plan, your stakeholders will be able to point them out before they become problems.

The first group of stakeholders to meet with is the executive leadership team. They hold the keys to the kingdom and will ultimately decide whether your plan should move forward or whether they’d like to take a different approach. It’s crucial to keep them involved from the beginning.

Schedule a meeting cadence so you can speak with the executive team face to face. This avoids unexpected changes in direction later on, because it forces company leaders to keep compensation planning top of mind, rather than an afterthought to be addressed (and altered) at the last minute.

Next, speak with all department heads involved in HR operations and gather as much information as possible about factors that will affect the plan’s roll-out. Ask about the Human Resources Information System (HRIS) you’ll be using, as well as any relevant data regarding the help desk, communications, payroll, benefits, staffing, and learning and development departments. It’s also important to engage the Human Resources Business Partners (HRBPs), as they are on the front lines of helping leaders on a daily basis.

Gather information on new hires, current employee titles, job descriptions, promotions, training, any reorganization that has taken place, and any changes on the schedule for the future.

Now build your timeline, gather your implementation team, and get ready to roll.

How to create a compensation plan: Assemble your stakeholders

3. Build out the details.

When it comes to assembling your plan, we recommend the KISS method: Keep It Simple with SimplyMerit.

If you build your plan the “traditional” way, you’ll be using spreadsheet after spreadsheet to try to keep track of each employee’s title, job description, experience, training, and salary. You’ll have to manually enter the details, organize them all, and then keep them updated. This can be an excessively complex, tedious, and time-consuming process if your company has more than a handful of employees. Things are always changing, and you’ll have to manually note those changes in your spreadsheets before you can move forward with the rest of the plan.

SimplyMerit is your automated comp planning solution. With SimplyMerit, you can skip all that manual work and let the program do the data entry for you. Changes are automatically entered into the program, so you don’t have to worry when a new employee gets hired or a manager takes a new training course.

In fact, that KISS method can be thought of another way as well: Keep It Short with SimplyMerit. The less time you spend updating spreadsheet cells by hand, the quicker your overall compensation planning process will be. This means there will be fewer opportunities for changes to occur and throw off your whole planning process.

What comes next?

After planning is complete, you’ll need to run it by your company’s leadership team one more time, present your ideas, and get them approved. When that’s done, it’s up to you—and the department stakeholders you’ve chosen to work with—to officially deploy the plan throughout the company.

Remember, since nearly half the year will be spent on compensation planning, you’ll want to take advantage of the next six months to reflect, evaluate, take action, and learn for ongoing improvement. Some of the discoveries may include a misalignment of jobs, title inflation, lack of career growth, opportunities for an update of pay ranges, and perhaps some pay inequities that need to be resolved for next time.

Now that the compensation planning cycle is done, you can research better compensation benchmarking tools, survey houses, and benchmarking methods that might make the next process quicker and easier.

If you don’t know where to start, you can always reach out to a third party that can help you get the job done properly—and quickly! MorganHR Consulting strives to complete a compensation infrastructure evaluation with a strategy in twelve weeks, leaving you plenty of time before your next compensation planning cycle.

Also, If communicating the compensation planning results doesn’t achieve the employee engagement you expected—for example, if some employees confront their managers asking why their pay isn’t what they’d hoped—consider compensation conversation training. This solution won’t find extra room in the budget for your disgruntled employees, but it will help managers learn how to better navigate those tricky conversations and arrive at mutually agreeable resolutions.

Want to make compensation planning even easier?

Let MorganHR be your one stop shop for help with creating a compensation plan and providing education for your leaders and employees. Our experts can offer the guidance and expertise you need to keep your compensation-related headaches to a minimum.

Our MorganHR consulting team not only shares decades of experience with helping companies arrive at the very best compensation plans tailored to fit their needs, we are also the developers behind SimplyMerit software. This software was developed using true boots-on-the-ground knowledge crucial to completing a compensation planning cycle.

MorganHR integrates personalized expertise with the intuitive, easy functionality of SimplyMerit and tops it off with the education you need to provide real transparency around pay. It’s time to take a step back and completely overhaul the way you approach compensation.


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About the Author: Shari Nornes

In her role as principal consultant with MorganHR, Inc., Shari Nornes embodies the principle that one-size solutions do not fit all. With over 30 years of diverse professional experience, Shari strives to provide clients with customized compensation infrastructure solutions aligned with regulatory requirements and organizational objectives. She listens, learns, and adapts to each client’s needs and offers observations that provide a basis for sustainability and growth.