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For most organizations, the fourth quarter is when compensation planning for the following year occurs. To make sure that you stay on track paying your people fairly and competitively, here are some things you should think about when you when you are planning for next year’s compensation budget. What should the merit increase budget be? Setting your merit budget is usually the first step.  A number of consulting organizations conduct surveys through the year and publish results in the autumn to help with compensation planning. Using this information an organization can determine what its overall increase target should be.  Most organizations use a system that rewards higher performers with a higher merit increase amount, while giving little or no increase to poor performers. Do your pay ranges need to be adjusted? If you rely on pay ranges to ensure internal equity and for ease of administration, you need to make sure they still have a relationship to the market. If it has been more than three years, you may want to check how your ranges compare to the market and if adjustments are needed. Are your incentives like commissions and bonuses driving the behaviors and outcomes you desire? If you pay bonuses or commission, how do you know you are getting the outcomes you want? Are they true motivators?  Is the amount of incentive pay appropriate for the job performed? There are many things to consider when paying incentives.  Spending some time analyzing what people are doing and what kinds of results they get is a good place to start when analyzing your incentive compensation plans. Are you rewarding top performers well? While studies have shown that there are so many other factors that determine how engaged employees are and whether they stay other than money, we do know that for top performers this is a key driver for them.  Make sure that top performers are receiving better than average rewards, and that you demonstrate in a tangible way that you value their contributions. Who will ensure that increases and bonuses are being allocated fairly? When it comes to compensation planning and administration, we feel that the best programs grow from a collaboration that includes operations, finance, and human resources.  HR needs to provide the structure so that allocations are done in a fair and consistent manner.  This does not mean taking away the discretion of departmental managers, it just means that a structured approach with guidelines can help eliminate bias and ensure that pay increases can be defended.  Consistency in rewards based on defined achievement enhances the program’s motivating qualities. These are only some of the questions you should be asking.  Developing a compensation plan requires knowledge about how compensation motivates people, what appropriate amounts of compensation are, and what is the appropriate balance between fixed [base pay] and variable [incentive/bonus/commission] compensation.  Getting this right will provide a good motivating tool for your employees without overspending or spending wrongly. Do you need assistance with developing your compensation strategy or other compensation consulting needs? Contact us and check out our blog for more helpful resources.