Compensation planning

Compensation planning and administration is the process of determining and awarding merit, promotion, or other types of compensation increases to employees.

Although the planning typically occurs as an annual exercise, actual awarding of merit increases can occur annually, or over time based on employee anniversary dates. Promotions increases, bonuses, and equity grants may also occur as part of this process. These may occur annually, or on an ad-hoc basis.

For every planning cycle, the compensation analyst define rules that govern compensation planning. These rules include:

• Defining the planning cycle (e.g. fiscal year),

• Creating validation rules

• Creating awarding guidelines

• Creating lump sum payment rules

During the planning process, compensation analysts determine how much of the total budget is available for awards such as merit increases, bonuses, and equity. This information is then passed to the financial team so that it can be used for budgeting.

Budget amounts can be transferred or reserved at different levels to accommodate employee movement within the organization or to accommodate other contingencies. Compensation provides for multiple iterations until the pool is finalized.

During the awarding process, managers are provided with guidelines and employee information to help make recommendations on the merit increase, bonus, and/or equity amount or units to be allocated to the employee. Planning rules determine how awards are validated, ensure that budgets are not exceeded, and identify how awards are processed.