Off-cycle compensation adjustments are complex. They’re also unavoidable, especially for enterprise organizations. When you employ thousands of people, some employees will eventually take on additional responsibilities, earn promotions, gain credentials, or exhibit consistently exceptional performance, and they’ll expect to receive salary adjustments for their efforts. Alternatively, if your organization requires people to work unconventional hours, then you should expect to pay a shift differential when someone moves from a daytime position to an afternoon or overnight shift.

These are just a few reasons why you could make off-cycle compensation adjustments. Although they’re inevitable, off-cycle compensation events can be hard to predict. Below are five tips you can take to help you manage these intricate changes.

1) Create a Strategy for Off-Cycle Awards

Awarding bonuses is a great way to show your employees how much you appreciate their efforts. That said, it’s important to have a strategy in place before you start signing checks. A well-planned strategy helps you make off-cycle payments without going over your budget. Off-cycle strategies also help you avoid unintentionally engaging in biased compensation practices. Your strategy should define rules that outline exactly when, why, and how employees will earn off-cycle awards or raises.

Leverage a compensation planning tool to help you establish the metrics you’ll track. Compensation software will also make it easier to approve increases. You can use compensation software to establish predefined approval guidelines and automatically approve spot bonuses and increases that fall within your parameters. 

Before implementing your strategy, take the time to research your market, current compensation practices, industry benchmarks, and other relevant factors that might influence your plan. Consider the rate of inflation, employee attitudes and needs, and your internal pay structures.

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2) Communicate Clearly to Avoid Confusion

Before you start making any off-cycle compensation changes, you need to communicate with your employees. It’s critical that your workforce understands when and why the changes are happening so people aren’t taken by surprise. Unexpected bonuses or spot awards can be exciting for the recipients, but they can also lead to frustration and confusion for employees who don’t receive the compensation increase. When workers feel like they’re being “kept in the dark” about compensation practices, they might be more likely to get frustrated or disengage from their roles.

Be as transparent as possible about why an employee group or department is experiencing an off-cycle change. Employees want—and deserve—to understand how compensation decisions are made, and being open and honest builds trust. 83% of employees and jobseekers in the U.S., say that transparency around pay bands or targets helps them feel more included in the workplace. Transparency helps you manage employees’ expectations so they’re prepared for upcoming changes and understand any eligibility requirements attached to off-cycle awards. 

Communicate changes well in advance so the affected employees can prepare and have adequate time to ask questions. Email notices are essential so everyone has a written record of any upcoming changes, but it can also be helpful to host a webinar or an in-person meeting. Some employees might find it easier to have the changes explained to them by someone who can answer their questions and provide clarification if necessary.

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3) Consider Long-Term Implications

An off-cycle raise can be a well-deserved reward for your hardest-working employees. Unfortunately, off-cycle payments can also lead to unintended negative consequences for your teams. Some employees who receive off-cycle raises or bonuses might find themselves ineligible for additional wage increases during their annual review cycle. Many workers anticipate increases after a positive performance review, and learning that they won’t receive their annual raise can cause frustration and anger. An off-cycle spot bonus may also not be worth the same amount over time as the potential raise, meaning the short-term benefit actually costs the employee more in the long run.

Before you commit to offering off-cycle bonuses or raises, be sure that they align with your overall compensation strategy and philosophy. Conduct a cost-benefit analysis to determine how off-cycle compensation awards will impact your employees’ eligibility for future rewards. It’s also important to assess how spot bonuses and off-cycle raises can affect your overall budget. Consider the short- and long-term needs of your employees and organization to ensure your compensation scheme remains equitable and sustainable.

4) Document and Track Every Compensation Update

Every off-cycle increase should be documented in each employee’s compensation record. Tracking spot bonuses, shift differentials, and other off-cycle changes makes it easier for you to spot patterns over time. Let’s say the same sales representative consistently earns bonuses while the rest of their team does not. It’s certainly possible that this employee is just a star performer. However, having a record of when, why, and how they earned their bonuses can help you ensure that their team isn’t missing out on opportunities. Tracking each person’s off-cycle awards can help you identify underlying (and often unintentional) equity problems or other factors.

Keeping a record of compensation changes also helps you understand how someone’s compensation evolves over time. This information could be especially important if an employee is on a succession plan. You want to ensure that future compensation changes align with your organization’s needs, the scope of their new role, and the employee’s expectations for wage increases or bonus opportunities.

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5) Use the Right Compensation Solution

Managing merit awards, referral bonuses, and other off-cycle awards takes a lot of planning and strategy, but it doesn’t have to be complicated. The right compensation management software will help you easily navigate intricate off-cycle award processes. Robust solutions like PeopleFluent Compensation let you configure varied and conditional workflows. Bypass manual reviews by automating approvals for off-cycle increases that fall within your preferred specifications. This saves your managers and HR team time and helps your employees receive their rewards faster.

Your compensation management system should also help you see the potential short- and long-term impacts of your off-cycle strategy. The right software will let you build models based on multiple scenarios so you can see the potential outcomes of various compensation plans. Knowing how your strategy could affect your business will help you refine your off-cycle plans so you can implement the off-cycle processes that are most likely to have a positive impact on your organization.

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