Merit Cycles are like the Super Bowl for Total Rewards leaders: the lead-in is long, the anticipation is palpable, and everyone is watching. It’s a critical program to ensure organizational health while rewarding your employee base for a successful year. It’s also the most public interface between Total Rewards teams and the rest of the company.
But after you’ve spent months of planning, getting employees bought-in, and communicating across the org, do you have a clear sense of whether your merit cycle was successful? And what does success actually mean?
A rigorous post-cycle analysis is essential for improving the efficacy and efficiency of your compensation program. You should be tracking metrics to evaluate budget adherence, cycle timelines, and adherence of your compensation philosophy in order to continually improve your merit cycle process.
A retrospective for merit cycles is also useful to celebrate the hard work of your compensation team and all their business partners who made it successful. More importantly for your team however, these metrics provide an opportunity for you to set expectations for future merit cycles and gather the support needed to make changes or improvements.
We created a downloadable Metric Cycle Scorecard template for your team to use alongside this post:
Download our Merit Cycle Scorecard template
Why are merit cycle metrics important?
Merit cycle metrics will help you run more efficient and effective processes and communicate overall business impact to the C-suite, and your employee base.
Setting clear metrics at the beginning of the cycle will:
- help your team deliver an exceptional compensation program
- signal to your team the outcomes that leadership cares most about
- provide a framework for making (and tie-breaking) decisions
- provide a basis upon which to grade the performance of your
organization
- help build empathy with your employee base about the reality of
balancing budgets, your compensation philosophy, and competitive pay
Not only do metrics help you see where improvements can be made in your program, but there is usually external pressure from the CEO to see numbers on how the cycle went. Identifying and aligning on metrics before your merit cycle starts can help you track progress from beginning to end.
3 Critical merit cycle KPIs to track for your team (and your executives)
At the end of the day, your merit cycle comes down to three things 1) the budget 2) the cycle timeliness 3) the adherence to your compensation philosophy. Here’s why we’ve chosen each metric and how we recommend measuring them.
1. Budget adherence
The topline metric you should be tracking is budget adherence. This is compensation, after all (money matters!). Sticking to a budget builds trust with leadership and is an indication that you have the right guardrails in place with directors and managers to ensure good decision making.
Budget adherence: (Total spend increase (payroll increase + equity) / total dollars budgeted for cycle))
Some companies might look at this by just payroll (cash) versus total compensation (including the equity budget), and that’s fine too.
You should also run a budget analysis from a few different perspectives to understand if you’re spending money where you intended:
- Budget spent on merit increases v. budget spent on promotions
- Spend increases, by geography
- Spend increase, by level
2. Timeliness of cycle
The next critical metric is timeliness of cycle. No one likes a drawn out cycle. Not finance who has to back-date pay, not your managers who are managing expectations with their reports, and not your employees who are eager to have compensation conversations as the usual last step in a performance review cycle. We recommend looking at a timeliness percentage that measures how effective the operations of your cycle were.
Timeliness of cycle: Actual cycle length (days) vs the planned cycle length
If you went over (or under) the allotted time of the cycle, break out the cycle into segments to understand where you gained efficiencies and which parts were potential sticking points. This will give you an idea of what needs to change for the next cycle.
3. Compensation philosophy adherence
The last critical metric is compensation philosophy adherence, which is designed to evaluate how aligned your merit cycle was to your compensation philosophy—the entire foundation of your comp program. Showing how aligned the merit cycle was can help build trust in how decisions are made and earn confidence from your executives that you’re spending cash wisely.
Comp philosophy adherence: “The percentage of employees within band” after the merit cycle, compared to before
Ideally this number is 100%, but ultimately you’ll want to use this metric to make sure that the organization is moving in the right direction. This is also an opportunity to look at DEI metrics as well.
Assigning a guideline to how well your team followed core components of your compensation philosophy is one of the most important metrics to align on with your executive team ahead of the merit cycle. It’s also highly dependent on what matters most to your leadership team.
Merit cycle metrics can help you drive efficiencies and communicate impact
Analyzing how your merit cycle went is a necessary step in the process of delivering an exceptional compensation program. It also helps you celebrate your team internally after a weeks-long process and communicate business impact upstream.
Budget, timeliness, and adherence to company compensation philosophy are all top areas where total rewards leaders should reflect back on in prior merit cycles, and set up metrics for future cycle success.
To learn more about how Pave can help you run your merit cycles more efficiently, request a demo.
Use our free template to make tracking your metrics easier:
Download our Merit Cycle Scorecard template
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