Reviewed August 26, 2026. The five compensation trends in this article were originally identified for 2021. They remain useful as historical signals, but the dated salary projections and pandemic-response percentages should not be used as current benchmarks. This updated guide turns those lessons into an annual compensation planning process for employers reviewing pay equity, variable pay, transparency, total rewards, and salary budgets.
Annual compensation planning connects market data, internal job relationships, performance measures, legal review, budget constraints, employee communication, and governance. The goal is not to copy a trend. It is to decide which pay practices fit the organization’s workforce, strategy, risk, and ability to administer them consistently.
What the 2021 Compensation Trends Can Still Teach Employers
| Historical trend | Useful planning question now | Evidence to review |
|---|---|---|
| Pay equity | Are pay decisions producing explainable differences across comparable work and employee groups? | Job architecture, pay ranges, starting pay, adjustments, promotions, incentives, tenure, performance evidence, and protected-group analyses. |
| Variable pay | Which results should affect incentive opportunity, and can employees influence those results? | Role accountabilities, measures, thresholds, funding, payout history, exceptions, and adverse-impact review. |
| Pay transparency | What should employees and candidates understand about ranges, placement, progression, and incentives? | Applicable posting laws, range quality, manager readiness, employee questions, and communication consistency. |
| Quality of work and life | How should compensation interact with benefits, flexibility, development, workload, and career opportunity? | Employee feedback, utilization, eligibility, cost, accessibility, recruiting evidence, and retention patterns. |
| Salary increase projections | Which external forecasts are relevant, and how should they inform—not dictate—the budget? | Current market movement, affordability, range position, compression, critical roles, performance, and approved priorities. |
1. Start With a Compensation Planning Mandate
Define the decisions the annual process must produce: salary budget, range updates, market adjustments, equity corrections, promotions, incentive funding, eligibility, communication, and approvals. Name the executive sponsor, HR owner, finance partner, legal reviewer, data owner, and final decision authority. Establish a calendar that leaves time for analysis, challenge, corrections, manager preparation, and payroll implementation.
2. Confirm Job and Employee Data Before Modeling Pay
Compensation analysis is only as dependable as the underlying job and employee records. Review job titles, duties, level, location, employment status, salary basis, scheduled hours, manager, hire date, pay history, range assignment, performance evidence, and incentive eligibility. Resolve duplicate jobs and inconsistent levels before comparing pay.
Where job responsibilities have changed, update the job description and evaluate the role before selecting market matches. JER HR Group’s pay-structure guidance explains how job relationships and salary ranges support consistent administration.
3. Evaluate Pay Equity With Appropriate Controls
Pay equity review should distinguish explainable, job-related differences from patterns that require deeper analysis. Define the comparison population, variables, data limitations, decision protocol, confidentiality controls, and review privilege with qualified counsel when appropriate. Do not assume that one unadjusted pay-gap statistic proves either discrimination or fairness.
Review hiring pay, promotions, market adjustments, merit increases, bonuses, and exceptions—not only current base salary. For a dedicated process, see JER HR Group’s pay equity analysis guide.
4. Design Variable Pay Around Controllable Results
The original article noted greater 2021 interest in variable pay. That remains a planning option, not a universal recommendation. Incentives should have a documented purpose, eligible population, measures, weights, performance period, thresholds, caps, funding source, approval process, exception rules, and payment timing.
“There is a greater use of variable pay to reward performance and less emphasis on fixed pay in the form of annual increases.” — James E. Rocco, as quoted in the original 2021 article.
Before adopting that approach, confirm that base pay is competitive and that employees can materially influence the measures. Test for unintended incentives, inconsistent opportunity, administrative burden, and adverse impact. Separate the decision about fixed pay from the decision about incentive opportunity.
5. Build a Defensible Salary Budget
| Budget component | Planning use | Control |
|---|---|---|
| General or merit increases | Supports planned movement based on the organization’s philosophy and evidence. | Define eligibility, timing, guidelines, and treatment of employees near range limits. |
| Market adjustments | Addresses roles with supported external competitiveness concerns. | Use current, relevant survey matches and document judgment. |
| Equity adjustments | Corrects validated internal patterns or individual anomalies. | Apply a consistent review and approval protocol. |
| Promotions and career movement | Funds changes in responsibility, level, or role. | Confirm the job change and placement method before approving pay. |
| Range maintenance | Updates structures when market movement or job architecture supports a change. | Do not move every employee automatically when a range changes. |
| Incentive funding | Provides for variable-pay opportunities and likely payouts. | Model multiple performance and affordability scenarios. |
External salary-budget forecasts can provide context, but they age quickly and may not match the employer’s industry, locations, workforce, or pay position. Record the publication date and population for every external benchmark.
6. Decide What Pay Transparency Requires
Transparency is broader than publishing a range. Employers need accurate ranges, documented placement factors, a response for employees outside or near the limits, manager guidance, and jurisdiction-specific review. Explain what the range represents, how a person’s pay was positioned, what progression depends on, and how incentive eligibility works.
Employees may also have rights to discuss wages. Review current NLRB wage-discussion guidance before writing confidentiality or communication rules.
7. Integrate Total Rewards Without Hiding Base-Pay Questions
Benefits, flexibility, leave, recognition, development, and career opportunity can influence the employee experience. They should be evaluated alongside pay, but they do not make an unexplained base-pay decision disappear. Define eligibility and employee value carefully, account for accessibility and tax implications, and communicate each component accurately.
8. Prepare Managers Before Employee Communication
Give managers approved ranges, placement factors, decision records, conversation guidance, escalation routes, and clear boundaries. They should not improvise legal explanations, promise future increases, compare named employees, or disclose confidential personal information. Test the communication with realistic employee questions before launch.
Annual Compensation Planning Checklist
- Confirm compensation philosophy, objectives, scope, owners, and approval rights.
- Validate job, employee, range, performance, and incentive data.
- Refresh market references using relevant and current survey sources.
- Review pay equity, compression, starting pay, promotions, and exceptions.
- Model salary, adjustment, promotion, range, and incentive budgets separately.
- Check federal, state, and local pay, posting, wage, and recordkeeping requirements.
- Document decisions, assumptions, limitations, and exceptions.
- Prepare manager communication and employee escalation paths.
- Reconcile approved changes with payroll and test implementation files.
- Review outcomes after the cycle and update governance for the next year.
Common Compensation Planning Mistakes
- Presenting old trend data as a current market benchmark.
- Updating salaries before validating jobs and employee records.
- Using one market percentile for every role without a documented rationale.
- Treating performance ratings as interchangeable across managers.
- Adding incentives without clear measures, funding, and employee influence.
- Publishing ranges managers cannot explain or administer consistently.
- Using total rewards language to avoid a direct base-pay concern.
- Implementing approved changes without payroll reconciliation or audit records.
Historical Context: The Original 2021 Findings
The original article discussed pay equity, variable pay, transparency, quality of work and life, and salary projections during the COVID-19 disruption. It cited 2019–2020 surveys and pandemic-era decisions about increases, hazard pay, and bonuses. Those figures are preserved as historical context but are not current planning benchmarks.
For JER HR Group’s separate current overview of equity, incentives, and transparency, see the compensation trends resource. Keeping that page focused on trend interpretation and this page focused on the annual planning process prevents the two resources from competing for the same search intent.
Build a Compensation Process the Organization Can Administer
JER HR Group supports compensation philosophy, market analysis, pay structures, equity review, incentive design, implementation planning, and communication. Explore JER HR Group’s compensation consulting services or contact the team to discuss an annual compensation planning scope.
This article provides general compensation and HR information, not legal, tax, accounting, or financial advice. Pay-transparency, wage, discrimination, privacy, and recordkeeping requirements vary by jurisdiction and can change. Obtain appropriate professional review.
About the contributor: Larry F. Beers is Director of Consulting with JER HR Group and has worked on compensation consulting projects since joining the firm in 1995. His experience includes staff compensation studies, executive compensation analysis, incentive programs, job evaluation, market benchmarking, and compensation governance. Contact Larry by email.
