Expert insights: Key questions on compensation review answered

We know that compensation reviews can be complex and riddled with challenges from start to finish. Overcoming those challenges is never simple, but it always helps to understand how other People Leaders approach them.

So, we reached out to three People experts in the Ravio community to get their perspective on the biggest challenges and their advice on how to tackle them:

• Section 1: Navigating stakeholders for a successful compensation review with Vaso Parisinou, Chief People Officer at Ravio
• Section 2: Ensure a clear compensation strategy is in place before your first compensation review with Becky Brawn, People Partner at People Collective
• Section 3: Fair compensation decisions require a structured approach and top tier communication skills with Alistair Fraser, Founder and Compensation Consultant at Justly

Navigating stakeholders is key to a successful compensation review with Vaso Parisinou, Chief People Officer at Ravio

For Vaso Parisinou, Chief People Officer at Ravio, one of the major challenges during a compensation review is handling a myriad of stakeholders – particularly executive team members and line managers. We spoke to Vaso to find out more.

What do you see as the biggest challenge with running a compensation review? 

The executive team is typically heavily involved in compensation reviews, and getting their buy-in and alignment on the approach is absolutely critical to the success of the process – especially CEOs who want to ensure the approach aligns with business strategy and prioritises retaining high-performers, and CFOs who need to stay on top of payroll costs and the budget for compensation increases.

How has this stakeholder challenge presented problems in your experience running compensation reviews?

I remember one particularly painful experience of running a company’s compensation review for the first time.

The approach for the compensation review was discussed in a roundtable kick-off meeting, documented, and circulated to stakeholders for review and sign off. I had noticed that the CEO was quieter than normal during this meeting (possibly distracted with something else?) but was happy that I’d reached a point of stakeholder alignment. Then, with no comments left on the document circulated post-discussion, I decided it was fine to go ahead and started the heavy lifting of the compensation review process with my team. 

A few days before the rollout of compensation adjustments, I received a panicked message from the CEO and founder who hadn’t been aware that work had begun and wanted to make changes to the approach, resulting in the team having to restart the long and complex process all over. 

With the gift of hindsight, I know that I ignored my better judgement – I knew in my heart of hearts that the CEO hadn’t engaged enough with the process, and I should have pressed for further input and sign off before cracking on with the process.

What advice would you give to People Leaders who are currently dealing with this challenge themselves? 

My advice for avoiding this is to make it an absolute priority to give those executive stakeholders plenty of time and opportunities to feed-in to the compensation review process, and to make sure there is documented alignment on the approach before going any further.

The challenge of stakeholder management is a little different when it comes to line managers. Line managers hold a lot of responsibility and impact within the compensation review process, because there comes a point where the People Team have the hand over the reins to managers to communicate compensation changes to their direct reports. 

These line manager to employee conversations don’t always go smoothly. Managers often fail to properly explain the rationale and approach behind compensation adjustments. It’s also too common for managers to place blame on the People Team in order to make the conversations less difficult for themselves – saying things like ‘well I advocated for you to receive a salary raise, but the decision was made by the People Team and it was out of my hands’.

This causes huge issues because employees can be left confused and frustrated, looking to the People Team for answers and making it appear that the company does not have a united front on the approach to compensation, which is a tense topic at the best of times.

In my experience, there are a few key ways to mitigate this:

• Involve managers and get their buy-in on the approach. This helps to ensure that managers fully understand the approach and have had a chance to input into it, so that it reflects their perspective too. This can be particularly helpful to sense check the benchmarking data being used for market adjustments, as managers will typically be aware of the going rates in their function. 
• Prioritise calibration sessions. Calibration meetings with managers are a vital part of the compensation review process, bringing together benchmarking data and performance ratings and checking fairness across the whole team before finalising compensation adjustments. Again, these are an opportunity for managers to share their own view of their team.
• Go heavy on manager briefings. Make sure managers are fully trained on the rationale behind compensation reviews and have a fully-loaded FAQs document before those employee conversations begin. I find it’s particularly helpful to identify managers who are feeling nervous about the process and to role play the conversation with them ahead of time.
• Consider transparently sharing the rationale in employee-wide communications. The People Team will typically handle full-company communications about the compensation review process, which is an opportunity to be clear about how compensation adjustments are being made before 1-2-1 conversations begin.
• Hold managers accountable. For managers that cause issues through poorly communicating with employees it’s also important to hold them accountable – it can be incredibly damaging for individual employees and for the workplace culture overall, so this should be reflected in the manager’s own performance review.

Ensure a clear compensation strategy is in place before your first compensation review with Becky Brawn, People Partner at People Collective

The team at People Collective work with startups of all stages and sizes and see a whole host of compensation review related challenges, but one that they find themselves coming across again and again is a lack of structure – what they term ‘the wild, wild west of compensation’. We spoke to Becky Brawn, People Partner at People Collective, to learn more.

What’s the biggest challenge with running a compensation review? 

We work with a lot of growth-stage startups and scaleups who lack structure behind compensation.

Early on, it’s often the priority to get the right employees in place to build the company and drive its growth. Compensation decisions are made in isolation for each new hire, with manager discretion to make an offer to get the best candidate on board. In terms of reviewing compensation, the employees who are loudest about asking for increased compensation are the ones who are most likely to receive it. 

There’s no compensation philosophy, no level framework, no salary band structure – no rationale at all behind compensation decisions.

Why is this lack of structure such a major problem?

It means that compensation packages are all over the place. 

Those new hire offers are made with little consideration of how they relate to existing employees – which means you could end up with two employees who are doing work of equal value but are paid at two completely different ends of a scale. 

That’s a huge problem in terms of internal pay equity for the team, and is exactly how issues like a large gender pay gap can creep into companies. With the advent of pay transparency and companies now disclosing the salary band for roles in job adverts, it’s also more likely that existing employees will become aware of the pay disparities, which breaks their trust with the company and heightens attrition risk. 

When it comes to putting a compensation review in place, it makes it extremely difficult to determine how compensation adjustments should be made, because there’s no agreed and documented logic. 

It feeds through into communicating with employees too: it’s impossible to communicate clearly and transparently about the review process without defining the factors that inform compensation decisions. We find compensation is often a ‘black box’ scenario wherein employees don’t see the functionality but are expected to trust the salary or pay increase that is spat out the other side. This erodes employee trust which can become a major business issue – hence why it’s one of the key areas we focus on untangling with our clients at People Collective.

What advice would you give to People Leaders who are currently dealing with this challenge themselves? 

My overall message is that getting your compensation strategy in place early is vital for successful and fair compensation reviews. 

Specifically, I’d recommend:

• Prioritise stakeholder alignment. Senior leaders and managers are vital stakeholders in determining the company’s approach to compensation. Get all of those key stakeholders in a room and try to find alignment on the key questions, like ‘how competitively do we want to place ourselves in the market for each function?’, or ‘how do we incentivise and reward our employees?’, and so on.
• Root decisions in data. As we’ve seen, ‘finger-in-the-air’ decisions cause issues. Companies who don’t have their compensation structure in place often default to using compensation reviews to increase base salaries to reward performance. This is dangerous territory because adjusting base pay for performance skews internal pay equity and how an employee’s base salary aligns with the market. We’d highly recommend instead basing the compensation review process around updating compensation to stay competitive against the latest benchmarks, as well as addressing any issues with internal pay equity. Performance can be effectively rewarded through variable pay incentives – and consistently high performance should lead towards a promotion to the next level and salary band anyway. 
• Be clear on ownership. Part of that stakeholder alignment is also getting clarity on who is responsible for the compensation review process. The decisions made should be collaborative, but ownership is important to keep the process running smoothly and in-line with the overall agreed strategy. 
• Translate the structure for employees. To build employee trust and loyalty you must be clear and transparent with employees about the factors that are taken into account within the compensation review.

As a final note, whilst the focus here is setting up a logical structure for compensation decisions, it’s also important to note that there will always be factors that sit outside of that logic.

Compensation conversations are inherently emotive and difficult for employees and for managers and that means there always needs to be room for feedback and discussion so you can continue to change and refine the process over time.

So don’t beat yourself up if it doesn’t go perfectly (especially the first time you run a new compensation review process!)

Fair compensation decisions require a structured approach and top tier communication skills with Alistair Fraser, Founder and Compensation Consultant at Justly

Alistair Fraser has supported 70+ organisations to ensure their approach to compensation is fair and transparent through his consultancy, Justly. His extensive experience building and growing high-performing teams in startups across the world showed him that this was the top problem faced: compensation shrouded in secrecy, leading to unfair pay decisions and employee distrust.

The challenge of creating and maintaining a fair and transparent compensation approach is especially pertinent during a compensation review – as we found out when we spoke to Alistair to find out more.

Why do companies typically struggle with fairness and transparency during a compensation review?

I find there are a few major stumbling blocks that can lead to a lack of fairness and poor levels of transparency during a compensation review:

• A poorly defined approach to measuring performance. Performance reviews and compensation reviews typically go hand-in-hand, with companies rewarding high-performers in some way. For performance raises or bonuses to be done fairly, there has to be a logical approach to measuring employee performance which uses clear metrics. This often isn’t the case, which can mean that human bias enters performance and compensation decisions, damaging fairness.
• A poorly defined approach to rewarding merit-based salary increases. Even when there is a clear and logical approach for measuring employee performance, companies can still fall down when they try to translate the performance rating into a percentage increase to salary. This is especially true in companies with complex pay structures (lots of job levels, roles, locations, etc) and in times where there are rapidly shifting market conditions. The compensation adjustments need to be done in a logical and structured way, using a method like a merit matrix to ensure consistency across the entire organisation. 
• Insufficient budget for compensation increases. Balancing internal budget constraints with the need to maintain competitive salaries against market changes and to reward performance is a major challenge. If the budget for adjustments is insufficient this may mean that all employees are left with market-lagging compensation, or it may lead to issues with internal pay equity as some employees receive a salary increase to remain in-line with the market but others do not. 
• A lack of employee clarity on the compensation review process. When there isn’t a clearly-defined approach to the compensation review, it’s impossible to communicate the process effectively to employees. And even if there is a clearly-defined approach, it’s still too common that communication with employees about the timeline and the reasons behind compensation adjustments is poorly done. This leaves employees with a lack of understanding about how their pay is being reviewed, which ultimately leads to confusion and dissatisfaction.

What advice would you give to a People Leader who wants to ensure a fair and transparent compensation review?

There’s a lot that goes into a fair and transparent approach to compensation, which is why Justly exists to support companies with this complex subject. 

At the heart of it it comes down to two core things: a well-defined approach to compensation, and a commitment to clear and open communication with employees.

Within this, a few pieces of specific advice:

• Use data and frameworks to inform your compensation philosophy. Leveraging tools like Ravio for reliable compensation benchmarking data gives you up-to-date information on what competitive pay looks like for companies like you and employees like yours. Using this data to build your compensation strategy, level framework, and salary bands ensures a structured approach to compensation decisions. When it comes to compensation review time, this means you’re able to determine pay increases in a formulaic way to minimise bias.
• Allow the compensation review process to be iterative. Compensation reviews inevitably involve a lot of stakeholders, especially managers. They’re also a highly personal subject for employees who naturally want to see their pay progress. It’s therefore important to regularly seek feedback both from managers and employees on the process and to use this feedback to make changes to improve the process.
• Communicate openly with employees. Organisation-wide communication about the timeline, process, and criteria used for compensation reviews is absolutely vital to gain trust and reduce employee dissatisfaction.
• Support managers with training. Offer regular training on unconscious bias, equitable pay practices, and effective communication to ensure fair and consistent pay decisions and supportive 1-2-1 employee conversations.