November 2, 2024
Executives, human resources leaders, and compensation practitioners know this recent storyline all too well: salary increases are distributed and bonuses are awarded annually at the end of a meticulously-planned compensation cycle. But merely months later, employees and leaders are back with requests for compensation adjustments and promotions.
In today’s fast-moving market for talent, employees are increasingly asking their employers: what have you done for me lately? With this sentiment, we think that there is a strong case for building a process for targeted, mid-year salary reviews into the annual compensation cycle. Targeted mid-year adjustments could be a smart investment of your total rewards dollars as a proactive action to recognize key employees and stop small compensation gaps from becoming larger and more complicated problems.
✓ Rectify inequities: Through multiple years of tight talent markets, employers have had little choice but to offer new hires competitive compensation that often created compression and even inversion with compensation for long-tenured employees. With employees sharing more compensation information with each other than ever before, inequities between newer and more tenured employees, as well as inequities between demographic groups in your workforce, are no secret and can create disengagement and potentially retention risks. Mid-year salary reviews provide a critical opportunity to reduce these risks by correcting or mitigating these types of inequities. Waiting until your next annual increase cycle to make these types of pay fairness corrections could be too long.
✓ Secure hot skills: The rapid pace of change means that organizations are increasingly reliant on “hot” skillsets, such as artificial intelligence and machine learning. Organizations are spending substantial resources to acquire and build these skills that are in demand by the competition. A mid-year salary adjustment is a chance to protect these substantial investments and secure the skillsets the business needs to succeed in a changing world.
✓ Show your top performers some appreciation: Your top performers are the most valuable employees to you – and your competitors for talent. Mid-year increases give you an opportunity to recognize those individuals, bolster retention, and support their continued engagement before the next internal career opportunity becomes available or the next incentive award is paid. Importantly, this can help reinforce apay-for-performance culture by showing that your organization truly differentiates pay and invests in the high-performing talent that makes a difference to the organization.
✓ Thwart the gaming of the system and unnecessary promotions: We have all seen it before: a questionable promotion request is submitted based on insignificant changes to the job description or a poor business case, all in a bid to deliver more compensation to address a perceived flight risk. Thwart the gaming of the system, and avoid sacrificing the integrity of your promotion process, job levelling, or titling framework. A mid-year salary review can offer exactly what leaders are asking for: more compensation to retain the talent they need now, without an unnecessary promotion.
✓ Understand who is at the intersection of “vulnerable in market” and “top performer.” Targeted mid-year salary adjustments are not for everyone – this is not a second merit increase cycle. Prioritize your compensation investments by understanding where pay is under pressure from the external market, employees who have skillsets that are valuable to you and in demand in the market, and who your high performers are.
✓ Know where your inequities are. Review your most recent hires and their compa-ratios – are they positioned higher in the range than your longstanding high-performers in the same job or grade? Also review your compa-ratios with a DE&I lens – do underrepresented groups in your workforce skew disproportionately towards the lower end of your ranges? If so, consider targeted increases to reward their loyalty, bolster their retention, and mitigate pay inequities.
✓ Think about your performance so far. For many organizations, the “doom and gloom” predicted for 2024 has failed to materialize thus far. If your organization is having a better-than-expected year, this could be the right time to implement targeted mid-year increases and send a message to key employees about their valued contributions to your results.
✓ Communicate cautiously. Be ready to communicate effectively to the majority of employees who will not receive an increase. Be prepared with clear, honest, and consistent communication, focusing on the process as opposed to individual circumstances, for example “salary reviews were conducted on an exception basis, following amid-year talent review and analysis of internal inequities and the market.”
✓ Budget for mid-year increases in 2025: Budgeting season is just around the corner for many organizations. In addition to the merit pool to fund your annual increase cycle, build mid-year salary adjustments into the budget to set yourself up with flexibility to make compensation actions off-cycle next year.
✓ Consider other tools in the total rewards portfolio. If your organization’s financials simply won’t allow for mid-year adjustments, get creative in shoring up retention strategies outside of compensation for key talent. Also, harness the power of non-monetary recognition and provide meaningful, personal appreciation, such as a unique experience, gift, or award.
In today’s fast-changing world, the notion of an annual compensation cycle might be too little, too late. Targeted, mid-year salary adjustments offer a proactive strategy to retain high-value talent and address pay fairness issues.
For more information, contact us at info@laulimaconsulting.com.
