Comp Cycle

The Definitive Guide to Running a Merit Cycle for 2024 (with Templates!)

The Definitive Guide to Running a Merit Cycle for 2024 (with Templates!)
Assemble Content Team

Assemble Content Team

Published on

November 15, 2023

Table of Contents

  • Introduction to Compensation (Merit) Cycles
  • Prepping for Success: Laying the Groundwork for Your Cycle
  • Running Your Cycle: 6 Tips for Maximum Impact
  • After Your Cycle: Wrapping Up & Moving Forward

Helpful Templates included in this Guide

1. Introduction to Merit Cycles

Have you felt like running a merit cycle is an exercise in juggling spreadsheets, evaluations, and tight deadlines? You're not alone. In today's fast-paced business world, compensation (a.k.a. merit) cycles can often be daunting, especially with the myriad of variables at play. Yet, a streamlined and effective merit cycle stands as one of the pillars of a healthy organization.

What is a Compensation (aka Merit) Cycle?

A compensation cycle is a routine business process, typically facilitated by the People and Finance teams, to determine compensation adjustments for employees. Compensation cycles can cover any combination of salary, bonuses, equity, or other types of total rewards, and involve a sub-group of employees or the whole company. Most organizations conduct compensation cycles on an annual or semi-annual basis, although others may do more frequent adjustments, such as quarterly or even monthly. 

A compensation cycle can go by many different names. It’s sometimes known as a merit cycle, comp cycle, focal review, annual review, or salary adjustment cycle depending on the organization. For the purposes of this guide, we’ll consider all of these terms interchangeable. 

Why is it Important?

A well-executed comp cycle ensures fairness, boosts morale, and aligns employee growth with organizational goals. It acts as a reflection of a company's values and priorities, directly impacting retention and overall productivity. In our competitive talent market, your 2024 merit cycle might be more important than ever. 

We built this guide to be your trusty roadmap. Whether you're a novice just starting out, or a seasoned comp leader looking for a refresher, we’ll break down the Merit Cycle into manageable phases. By the end, you'll be equipped with a clear roadmap, ensuring you navigate the cycle with confidence and precision. Let’s dive in!

2. Prepping for Success: Laying the Groundwork for Your Merit Cycle

Proper preparation is essential; it’s akin to setting the foundation before constructing a building. To help you prepare, this short-list gives you the must-haves as you get ready for your cycle: 

  1. Compensation Philosophy: Any Merit Cycle should be built on a foundation of market data and salary bands. Begin by building or refreshing your salary bands according to your compensation philosophy. Some companies address market and / or promotion increases during a Comp Cycle which should always be driven by compensation bands (Assemble Salary Scale Template).
  1. Timeline: Mark out key dates, from initial communications to final announcements. Be sure to allocate 1-2 months for your preparation before the cycle goes “live.” Some companies can roll-out in under a week - but this requires an airtight compensation program and well trained managers. Most companies need a few months, so be sure to plan ahead! 
Comp Cycle Timeline

  1. Data Collection: Next, collate all relevant data. This includes current total compensation package, compensation band, relevant metrics (e.g., compa-ratios, performance ratings) and any other relevant documentation. While performance shouldn’t be the only factor in determining an employee’s compensation increase, it’s an important variable that managers should review. 
  1. Budget Allocation: Determine how much you can allocate for merit and other comp increases. Typically, People leaders will collaborate with their Finance counterparts to build the right budget for the Comp Cycle. Take a look at this Merit Budgeting Template to support those conversations. 
  1. Communication: Draft clear guidelines for managers. This ensures a unified approach in evaluations and expectations. You’ll probably want to start with a manager training session for education around how to make recommendations and when those requests should be submitted (Manager Training Presentation Template).

Remember, ensuring a strong foundation will enable your Comp Cycle to flow more seamlessly. While there’s a lot to prepare, you’ll be thankful to have these components in place before the Cycle starts. 

3. Running Your Cycle: 6 Tips for Maximum Impact

Once you’re set, it's time to roll up those sleeves and get into the heart of it.

  1. Kick-off Meeting: Arrange a meeting with team leads and managers to brief them on the process. This is your opportunity to highlight guidance for the cycle (e.g., expected merit increases) and clarify questions. 
  1. Manager Recommendations: Ensure all managers submit evaluations on time. Keep an open line for any questions or clarifications.
  1. Approvals: Some organizations have strict approval flows (straight-up the line of command). Others have a more free flowing approval process (Skip Manager or Exec Team do final approval). In either case, be sure you have a documented and structured approval flow. 
  1. Review Meetings: Schedule periodic reviews to gauge progress and address any concerns promptly. Remember, some managers might be out-of-office during a cycle! Be sure to review their employees with Skip Managers or other Departmental leads during these reviews. 
  1. Documentation: Maintain meticulous records. This not only ensures transparency but also serves as a resource for future cycles.
  1. Calibration: Once all requests have been submitted and approved, the People team should lead a calibration session to review requests relative to EEOC protected categories and performance (Calibration Dashboard Templates). 

A typical comp cycle for a mid-sized organization (100-1,000 employees) takes anywhere from 4-8 weeks, depending on: 

  • The duration of manager submissions 
  • Approval flows once a manager submits (e.g., does a request go up every chain of command)
  • Calibrations with the People and Finance teams 

4. After Your Cycle: Wrapping Up and Moving Forward

The end of the cycle is just as crucial as its onset. It’s the moment to ensure all adjustments are clearly communicated and understood, and a time to gather reflections for a better round next time. It’s also what most employees and managers will remember - so it’s critical to get right! 

To wrap up the cycle, People leaders should focus on: 

  1. Salary Adjustment Letters: Once the decisions are finalized, it's imperative to convey them transparently. Draft clear and concise compensation adjustment letters for each employee, detailing any changes in their pay. Ensure these are delivered promptly, allowing ample time for any queries or clarifications (Total Rewards Statement Template).
  1. Manager & Employee Discussions: Encourage managers to sit down with their team members for one-on-one conversations. This face-to-face dialogue ensures that there's no ambiguity, fosters understanding, and strengthens the rapport between managers and their teams. It's a chance to celebrate achievements, address concerns, and set goals moving forward (Manager Training Presentation Template).
  1. Feedback and Learnings: The end of a cycle is the beginning of introspection. Create a feedback mechanism where both managers and employees can share their experiences, concerns, and suggestions. This treasure trove of insights will be instrumental in refining and enhancing future compensation cycles, making them even more effective and streamlined.

Finally, be sure to update your systems with the approved compensation changes! Don’t forget target variable compensation and any equity compensation - in addition to base salary changes. 

With these steps in place, not only will you wrap up the current cycle efficiently, but you'll also be laying robust groundwork for the cycles to come.

If you want to learn about how Assemble enables you to run a Comp Cycle at scale through best-in-class software workflows, request a demo here

Assemble Content Team

Assemble Content Team

Assemble is the world’s first compensation platform designed to empower your teams to attract, retain, and motivate top talent with fair and equitable pay.