Compensation Review

What Is a Compensation Review?

A compensation review is the process by which an organization evaluates employee pay to determine whether salary, bonuses, equity, and total compensation are fair, competitive, and aligned with performance and market trends.

This process often includes:

• Reviewing individual pay levels relative to benchmarks and internal bands
• Assessing performance and role changes
• Budgeting for raises, bonuses, or equity refreshes
• Identifying pay gaps or inconsistencies

Compensation reviews may occur during a scheduled merit cycle or off-cycle when an employee is promoted, receives a market adjustment, or is at risk of leaving.

Why Compensation Reviews Matter

Supports Pay Equity and Fairness

Regular reviews help ensure that employees are paid fairly across teams, levels, and demographics.

Improves Retention and Engagement

Employees who feel they’re paid fairly are more likely to stay and stay motivated.

Keeps Compensation Competitive

Benchmarking salaries against the market helps companies attract and retain top talent.

Enables Data-Driven Decisions

Formal reviews help organizations allocate budget effectively and justify pay decisions.

Common Challenges in Compensation Reviews

Disparate or Outdated Compensation Data

Without real-time access to salary benchmarks, internal bands, and current pay, it's difficult to assess fairness or competitiveness.

Lack of Standardized Frameworks

Without job architecture, compensation bands, or a clear philosophy, decisions can be inconsistent and opaque.

Manual Work and Fragmented Processes

Spreadsheet-heavy processes make it hard to scale reviews or track decisions across the organization.

Limited Manager Training or Context

Managers may lack the context, data, or tools to make thoughtful and fair recommendations.

Best Practices for Compensation Reviews

Define and Communicate a Compensation Philosophy

• Clarify how you approach market positioning, raises, and performance-based pay.
• Ensure consistency in decisions across departments and teams.

Establish Clear Pay Bands and Job Architecture

• Use internal leveling to compare employees fairly.
• Align roles with up-to-date salary benchmarks.

Automate the Review Process

• Use tools like CandorIQ to centralize workflows, track changes, and run approvals.
• Avoid version control issues and spreadsheet overload.

Incorporate Both Market and Performance Data

• Consider compa-ratios, tenure, manager feedback, and business impact.
• Balance internal equity with external competitiveness.

Compensation Review vs. Performance Review

While often linked, these processes serve different purposes. Performance reviews assess how an employee has contributed to the organization. Compensation reviews use that performance (among other factors) to inform pay decisions.

Performance Review

• Focuses on behavior and outcomes
• Based on manager feedback and goals
• May occur quarterly or biannually
• Results may influence compensation

Copensation Review

• Focuses on pay decisions
• Based on performance, market, and budget
• Often tied to annual or semi-annual comp cycles
• Makes formal pay change recommendations

The Bottom Line

Compensation reviews are essential to building a fair, transparent, and competitive pay strategy. Done right, they reinforce employee trust, align pay with value, and equip HR and Finance teams to manage compensation proactively—not reactively.