Workflow 8
Compensation & Benefits
Market review and the merit cycle
Illustrative current-practice design
This workflow shows a conventional compensation cycle in which market analysis, performance ratings, internal equity review, budget approval and manager allocation come together annually.
Use it as a complete starting point, then adjust it for your company's strategy, culture, workforce, jurisdiction, collective agreements, technology, risk appetite and future-of-work direction.
Content last reviewed 28 July 2026.
Philosophy
Pay is defensible or it is a liability. Bands are benchmarked on a schedule, exceptions are written down, and the merit cycle follows the rating rather than the negotiation.
Cadence
Semi-annual market benchmarking; merit cycle December to January; benefits renewal annually
The steps
- 01
Market review
Semi-annual
- Benchmark bands against survey data by job family and location
- Flag roles falling out of band, with a cost-to-correct estimate
- 02
December: merit cycle opens
- Performance ratings and market analysis land together
- Finance confirms the merit pool
- 03
January: allocation
Legally sensitive: verify locally- Managers allocate within the pool against ratings. Top performance: 4–6%. Other performance levels: differentiated within the approved merit matrix. Lowest performance level: potentially 0%, subject to company policy, evidence and local requirements.
- Before final approval, analyze proposed outcomes for unexplained differences across gender and other legally permitted demographic groups, as well as tenure, range position, job family, location and manager. Use the findings to investigate decisions, not to make automated conclusions about discrimination.
- Out-of-cycle adjustments handled as documented exceptions
- 04
Benefits
- Annual renewal and utilisation review
- Enrolment supported by HR Ops with a fixed window
Who does what (RACI)
| Step | Responsible | Accountable | Consulted | Informed |
|---|---|---|---|---|
| Benchmarking | Rewards COE | CHRO | Finance | HRBP |
| Merit allocation | Manager | BU Leader | HRBP, Rewards | Employee |
| Equity review | HRBP | CHRO | Rewards COE | BU Leader |
Design notes
The merit percentages
These figures are an example configuration, not a current market forecast or recommendation. The company must set its actual matrix using the available merit pool, market movement, inflation, range position, internal equity, performance philosophy and legal obligations.
Decisions the organization has to make explicitly
Whether pay is primarily market-, role-, skills- or performance-driven. How much differentiation ratings should create. Whether team outcomes affect individual rewards. How range position influences increases. When market corrections occur outside the annual cycle. How pay decisions are explained to employees. How collective agreements change the process. What information managers and employees can see.
Future-of-work considerations
- Skills-based pay and verified capability premiums
- More frequent market adjustments for rapidly changing roles
- Recognition of project and team contribution
- Personalized total-rewards choices
- Greater employee visibility into ranges and pay positioning
- Pay-transparency reporting and disclosure
- Consistent treatment of remote and geographically distributed work
- AI-assisted equity analysis with named human accountability
- Auditable explanations for algorithm-supported pay decisions
- Less dependence on a single annual performance rating