3- Compensation Process Timelines and Dependencies
Time is of the essence. The efficacy of the reward depends highly on the timing of the reward.
The objective of this chapter is to highlight compensation management process. Why is compensation carried out during the year? How is compensation impacted by financial cycles? What are the dependencies with other business results on compensation? We will review this in details as a prelude to taking up the system perspective.
Compensation process timelines are pretty stable within a country. Most of the companies follow a similar timeline and reward their employees.
Compensation processes include the regular annual review process as well as ad-hoc year round processes like promotion, lateral move etc. that impact employee’s compensation.
Compensation processes and timelines are aligned to financial and employee performance review timelines
Normally the annual review process is aligned with the financial year of the company and the employee performance review. In theUS, most of the companies follow the January to December financial cycle. But in other countries, April to March cycle is common too. The alignment with the financial cycles helps in deciding the budget available for salary increase and bonuses for the employees. Depending on companies’ performance, the employee’s reward could be modified. In bigger companies, the department’s performance might be a factor too.
Some compensation processes have awards that are dependent on the employee performance appraisal. Normally the final appraisal ratings are given after the financial year is over.
Also, the world of business is ever changing and demands for certain people with skills keep changing. To accommodate the changing in compensation for certain skills; compensation department changes the compensation of certain positions to be competitive in the talent marketplace.
3.1 Year End Process
The Annual processes include annual bonus and salary increases. These are annual processes that are based on different criteria like performance of employee/ department/ company, aligning with market realities, adjusting for years of services, etc… The year end process provides with a logical time period to review changes and plan for the future.
Annual process happens once a year and is a combination of multiple activities. There is also a need for various kinds of information that becomes a part of the process e.g. persons performance, organization’s performance, company’s performance, previous performances, employee’s movement during the year, partial year calculations, budget implications for the manager, employee’s performance in comparison with their peers, etc…
The Annual process is one of the key processes that the compensation department works hands-on with the line managers. The overall responsibilities of the compensation department are very high in this process.
The performance rating on a person can only be truly determined after the year has ended. The financial performance of the company can only be truly determined after the first month of the following year. Based on these kinds of dependencies, it is very likely that some year end processes have retro-active components in their calculations.
The payout from the year end process happens within the 2/3 months after the year end. This allows for compilation of all the relevant information.