Compensation

What this achieves

Compensation is where pay changes are proposed, checked against a budget, approved, and applied. It runs the annual merit cycle as a governed process rather than a spreadsheet exchanged between managers and HR.

Looking for commission?

Commission is documented in payroll, not here. It is set up and run alongside the payroll cycle because it is paid through it — the plans, the targets and quotas, the batch that works out what each person earned, its approval, and any correction afterwards all sit with payroll.

A merit cycle is a lifecycle

The cycle moves through defined stages, and the stage decides who is acting.

Option	Description
Launch	HR opens the cycle and sets its budget.
Manager submissions	Managers propose an increase per employee.
Review	HR reviews what has been proposed.
Approve	Proposals are approved.
Apply to salary	Approved changes are written to employee records.

Nothing changes anyone’s pay until the final stage. A proposal is a proposal, which is what makes the process safe to run in the open.

Example: Olivia Bennett proposes increases for her engineers at HC Corp. Nothing on James Whitfield’s record changes until HC Corp approves the cycle and applies it.

Proposals are judged against bands

A manager does not propose a number in isolation. A salary band belongs to a grade, set as a minimum and a maximum when the grade is defined, and a proposal is measured against that band using compa-ratio and position in range.

That gives the conversation a shared frame: the question becomes whether someone should sit higher in their band, rather than whether a number feels right.

Example: an engineer at HC Corp UK Ltd who sits low in their band with strong performance is a different case from one already near the top, even where both are asking for the same percentage.

A merit matrix is a separate mechanism

Bands say where someone sits. A merit matrix says what to do about it: each cell maps a performance rating and a position in range to a recommended increase percentage, with a minimum and maximum around it.

The two are different objects with different owners. Grades and their bands are part of your job architecture. A merit matrix is built in compensation and selected by a cycle, and it reads the band rather than defining it.

Example: an engineer rated at the top of the scale who sits in the lower quarter of their band draws a higher recommended percentage than the same rating near the top of the band. The band decided where they are; the matrix decided the percentage.

Every manager in the cycle starts from that same recommendation, so a proposal begins from a rule rather than from a blank field.

Budget enforcement

Every cycle carries a budget, and you choose how strictly it binds.

Option	Description
Hard	Over-budget proposals are rejected. The budget cannot be exceeded.
Soft	HR can override the budget, but the override is audited and requires a stated reason.

Budgets can be held as departmental pools, and pending spend rolls up as proposals arrive — so a manager sees what is left before submitting, not after.

Example: if Engineering’s pool at HC Corp is nearly committed, Olivia Bennett sees that while she is still deciding, rather than discovering it when a proposal is rejected.

Soft mode with an audited reason is usually the honest setting. Budgets get exceeded for real reasons, such as a retention risk, and recording the reason is more useful than a hard block that pushes the decision into email.

One-time awards

A bonus is not a salary change and is handled separately, with its own reason and approval tracking. Keeping the two apart matters: a one-time award does not compound into every future year, and confusing them overstates your permanent salary cost.

Total rewards

A total rewards statement aggregates salary, bonus, and benefits value per employee per year, available both to administrators and to the employee. It answers what someone actually receives, which is usually a larger figure than the salary they quote.

Pay equity

Pay equity analysis examines salary distribution and pay gaps across demographics. It is admin-only, because it is analysis of a whole population rather than of any individual. Run a pay equity analysis covers reading one and what its cohorts mean.

What happens next

Approved changes write back to the employee record and to its effective-dated compensation history, so the change is dated rather than overwriting what was there. Payroll picks up the new salary from the employee record on the next run. Performance ratings are the usual input to a merit proposal, and reward eligibility rules read from them directly.