We often get asked whether focal reviews or anniversary compensation reviews are better. Sometimes, smaller businesses start by reviewing comp annually on the anniversary date of the employee. Then, there comes a tipping point where the reviews are scattered throughout the year and it’s a challenge to coordinate the review process. That’s when companies shift to doing all reviews once (or twice) a year, creating a focal point for reviewing compensation.
At PayScale, we believe that focal reviews are better. But don’t take our word for it. We sat down with one of our customers, Carla Williams from SpenDifference. She recently guided their organization from anniversary to focal reviews. She gave us the top five reasons that made sense for their organization. We think they’re worth considering.
1. Align Goals to Business Calendar
When the company first started, they initially did focal reviews. This created the challenge of paying out increases for all employees at the same. For a small company, this naturally can create a cashflow problem.
Two years ago, the organization switched to anniversary reviews. This addressed the potential issue of bonuses and raises hitting payroll at the same time, but also created a potential time crunch. The quality of the writing improved, because managers had time to get reviews out … but reviews also took a lot longer. This meant that the company wound up giving more retroactive raises and feedback wasn’t timely.
Most recently, SpenDifference switched back to focal reviews. They started using the Prometheus strategy process for their organizational planning, and that forced them to get real about their goals all the way to the individual level.
“The goals are annual, but the anniversary could spread over two years very easily,” says Williams. That made anniversary reviews challenging, further reinforcing the need for focal reviews to improve alignment of goals throughout the organization.
2. Correlate With Budget
Focal reviews allow the company to allocate the 3 percent increase given by finance in a more meaningful way, Williams says.
Finance puts 3 percent in the budget every year, but it’s up to comp and HR to allocate it best, usually giving a bigger piece of the pie to high performers and hot jobs. According to PayScale’s 2017 Compensation Best Practices Report, 34 percent of organizations gave a highest increase of over 10 percent, so companies are paying more where they have to.
3. Create More Consistency Across Organization
Money is also looser at the beginning of the year, which means that higher raises could conceivably go to people with start dates earlier in the year. Focal reviews remove the tendency to give more money to those with anniversaries closer to when budgets open.
Focal reviews level the playing field for employees. When organizations do anniversary reviews, employees whose reviews come up in October might find themselves given smaller increases for the same level of performance than those with anniversaries in January.
4. Align to Organizational Culture
Focal reviews ensure that compensation aligns with both business goals and organizational culture. This not only rewards the achievements the company wants to recognize and encourage, it also makes it easier to be transparent about what the organization values.
“[In] our culture we believe in being as transparent as we can,” Williams says. “We just got PayScale this year. It makes the conversation more transparent, it becomes ‘not just my opinion.’ It’s real data, if you’re not happy with it, let’s have good dialogue and get you where you want to go.”
5. Creates Better Discussions – and Allows You to Provide Better Manager Training All at Once
Only 19 percent of orgs are very confident in their managers’ ability to have tough conversations about pay, according to PayScale’s 2017 Compensation Best Practices Report. But only 30 percent of companies train their managers how to do so.Only 19% of orgs are very confident in their managers’ ability to have tough conversations about pay.Click To Tweet
Compensation data can provide insight that supports pay discussions with employees, and makes managers more comfortable having uncomfortable conversations.
“Since we’ve been using PayScale data, there’s been more confidence, and the conversations have gone better,” Williams says. “It alleviates the conversation during the hiring process of ‘they told me they were making X.’ If the potential new hire is smart, they lied about what they’re making, [and] we want smart people!”
In addition, she says, focal reviews based on data allow for “really good discussions, we are maybe willing to pay for extra skills or certs. [Hiring managers] feel more confident going to make an offer. It’s not a shot in the dark.”
How to Do Focal Reviews at Your Company
Sold on focal reviews, but not sure how to convince the rest of your organization? Williams offers these tips:
- Talk to executives and model with analytics.
- Acknowledge the challenge of adapting to change.
- Understand the people piece – unless you communicate carefully, the tendency on the part of employees will be to perceive change as something being taken away.
- Know your company – do you have the cash/ability to make a change?
- Make a plan. Build a bridge from the status quo to the new way of doing things. Make sure you don’t skip people who haven’t gotten a review under the old system … and be clear with them that you’re keeping them in mind.
- Be willing to make exceptions. This isn’t universal. Do what’s right for the individual.
- Have open communication. “It’s OK to say you don’t have it all figured out,” Williams says.
Looking for more best practices? Check out the Compensation Best Practices Report!