Compensation Planning for 2025: A Strategic Guide

Updating compensation structures for the new year is essential for smaller companies to stay competitive, attract talent, and maintain employee satisfaction. 

The following is my structured approach for heads of HR to review and update compensation effectively.

Assess your current compensation strategy

Here are some questions you should ask as you're assessing the effectiveness of your compensation programs:

• How are your cash and/or burn rates?
  • Any impacts on hiring or increases for next year? 
  • Are you looking to fundraise in the new year?
• Feedback from hiring and talent acquisition:
  • Are offers typically on-target or is there a lot of negotiation? 
  • Are starting salaries falling below your salary range midpoints, or are they creeping above those? 
• Feedback from employees and managers:
  • Are there questions or complaints on issues surrounding pay equity, has there been a spike in people leaving, or are you hearing requests for additional benefit programs? 
  • Are managers asking for promotion opportunities in order to increase salaries even when employees may not be ready for the additional responsibilities? 

Depending on the assessment results, what are some things you can change? 

1. Job architecture Have you adequately defined the career levels in your business? Are you large enough now where additional levels (Sr Manager, Sr Director) might be warranted? 
2. Market data Are you getting by with free data that may not best reflect your hiring market, or should you invest in data with better focus on your industry and geographies. Are you targeting 50th percentile (middle of the market), or should you target higher levels of competitiveness for critical skills? 
3. Salary structures If you are using a single national structure, should you look at geo-based zones where you can add premiums and discounts depending on where you need to source talent? Are your salary bands wide enough to give you adequate flexibility? 
4. Connection to performance Are you successfully differentiating salary increases, bonuses or equity awards based on clearly differentiated performance? You may also need to carve out some budget for roles that have significant impact on your valuation and long-term success? 
5. Communicating your total rewards package Is there a central location where employees can find their compensation history, vested and unvested equity awards, benefits programs, etc.? Consider how a total rewards statement that provides a comprehensive view can both educate and engage your workforce. 

My final recommendation

Build in the right feedback loops to monitor effectiveness throughout the year. Metrics but also give employees an opportunity to ask questions and understand their total rewards more. This could come through quarterly town halls or regularly scheduled office hours with leadership.