Compensation

Performance Review Payouts - What to Expect and How to Plan

January 12, 2022
By: 
Catharine Riddick

By this time, your performance review for the end of 2021 has ended. It’s that time of year when you reflect on how your company has performed and whether you reached your goals. It’s also that time when you need to consider compensation and how your employees will be rewarded for the work they’ve done and going forward.

During the performance review process, you likely had to consider things like bonus payouts, merit increases, and cost-of-living adjustments. All review rewards serve to compensate your employees for the goals they’ve reached and also help motivate them to perform even better.   

This means you’ll have to consider things like bonus payouts, merit increases, and cost-of-living adjustments, which all serve to not only compensate your employees for the goals they’ve reached, but also motivate them to perform better. 

More importantly, during this time, you’ll also be able to plan for financial rewards and incentives to be more effective as your business grows. But what are some of the things you should consider when doing your planning? In this post, we’ll look at this question in more detail.

What Happens After Performance Reviews

By now you know that, for many companies, performance reviews are a perfect tool to make decisions about headcount management and implement strategies to improve your employees’ training, career development, productivity, and efficiency.

It, typically, also forms the foundation of discussions about compensation or, in other words, what employees will be paid and how compensation will be structured going forward. And this is vitally important as headcount represents anything from 60 - 70% of a company’s headcount. This means you’ll need to consider things like bonus payouts, merit increases, and cost of living adjustments.

Bonus Payouts

One of the first things you’ll need to do after a performance review is determine the performance-related bonuses you’ll pay to your staff. Typically, companies pay these bonuses to staff to show their appreciation for the work that the staff has done, or, as is the case after performance reviews, due to their performance during the past year.

It’s no secret that these performance bonuses can drive positive behaviors which, in turn, drives better performance. As such, by paying the right bonuses, you’ll ensure that your staff are more productive and efficient which, ultimately, translates into better performance for the company as a whole.

Keep in mind, though, to be most effective, there are certain things you’ll need to consider when it comes to planning for bonus payouts. For one, you should set out clear goals for each position in your job catalog. As a result, employees will know the goals they should reach to qualify for the bonus. In addition, you should consider the right metrics to track your employees’ progress towards these goals.

More important is that your employees know what bonuses they’ll be able to earn if they meet their goals.Goals should be ambitious but achievable. . In other words, your compensation plan should be transparent and fair. This serves to increase motivation and morale which, in turn, ensures better performance.

Merit Increases

Another thing you’ll need to consider after the annual performance review is merit increases. Unlike performance-related bonuses which are paid once-off, merit increases determine a specific employee’s total compensation for the next year until your next round of performance reviews (or whenever you revisit compensation). 

In cases where warranted, merit increases may also mean promotions to positions with higher compensation and increased responsibilities.

The similarity between merit increases and performance-related bonuses is that they’re both based on the specific employee's performance. This means that, when planning for merit bonuses, you’ll need to specify the performance goals your employees need to meet to earn these merit increases. You’ll also, as mentioned earlier, need to make your compensation plan fair and transparent so that your employees understand why some get increases and some don’t

Like performance-related bonuses, merit increases also serve to motivate employees to not only perform better, but also to improve their skills. This is simply because it directly connects better performance with financial success. In turn, this has a positive effect on your company’s bottom line. It goes further than this, though.

Merit increases also help you to ensure that you’re paying your employees competitively. As a result, you’ll not only be able to attract the best talent, but you’ll also be able to retain them by increased loyalty.

Cost-of-Living Adjustments

Often you’ll also need to consider cost-of-living pay adjustments after your annual performance review. Let’s face it, inflation is a fact of life and these cost-of-living adjustments allow your employees to retain a certain standard of living despite rising prices. Typically, these adjustments vary based on several factors including your employees’ location, the rate of inflation, and the type of benefits or payment they impact.

As a result, it’s vital that you take these aspects into account when planning these adjustments. For example, you should determine the cost-of-living adjustment for every employee based on where they are. Although this could mean that different employees receive varying compensation based on their location, it allows you to pay your employees a reasonable salary suitable for their specific living expenses.

The Bottom Line

To guarantee your company’s success, you’ll need to implement the right compensation management plan that awards the right incentives to employees after an annual performance review. In this way, you’ll ensure that your employees stay motivated and that you’ll have the ability to attract and retain the best talent.

However, to be most effective, you’ll also need to plan and implement your compensation plan.. And that’s where Trueplan comes in; we provide an all-in-one solution that simplifies your headcount management.

With our platform, you’ll have a single source of truth for all of your headcount management processes and automated financial planning for your company’s largest operating expense. To learn more about our platform and how it can help you, visit our website and schedule a demo today.

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