The Annual Remuneration Review: A Step-by-Step Operating Model

1. Setting the Review Rhythm

The most common mistake is starting the review process too late. An effective operating model aligns the remuneration cycle with the business’s financial and strategic cadence.

The "Working Backward" Strategy: If your new salaries take effect on July 1, your operating model should kick off in February.

• Q3 (Planning Phase): Review and update salary bands using fresh market data (e.g., Mercer, Korn Ferry). Confirm the total merit budget with Finance based on half-year performance.
• Q4 Early (Execution Phase): Launch manager self-assessments and initial recommendations.
• Q4 Late (Governance Phase): Calibration and Board/RemCo approvals.
• Year-End (Communication): Statements issued and payroll updated.

Pro Tip: Align your "Performance Lock" (the date when performance ratings are finalized) at least two weeks before the "Remuneration Lock" to ensure pay decisions are based on validated data.

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2. Calibration Agendas: From Data Entry to Strategic Trade-offs

Calibration is often the "bottleneck" where the process slows down. The goal of an operating model is to move executives away from debating individual data points and toward making strategic trade-offs.

Standardizing the Calibration Agenda: Instead of reviewing every employee, structure your governance checkpoints around these four agenda items:

1. Distribution Analysis: Does our performance curve align with the business's actual results for the year? (e.g., avoid "Everyone is Exceptional" if the company missed its targets).
2. The "Top 10%" Test: Are we disproportionately rewarding our highest-impact talent, regardless of their current position in the salary band?
3. Equity and Bias Check: Reviewing the proposed increases through a lens of gender, tenure, and diversity to ensure no systemic bias is present.
4. Exception Management: Reviewing only the "outliers" those receiving zero increase or those proposed for a jump significantly outside the guidelines.

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3. The "Final Sign-off" Checklist

The final stage of the operating model is turning the approved data into tangible actions. High-performing organizations use a formal checklist to close the loop between the Boardroom and the employee's inbox.

The Final Sign-off Checklist:

• Budget Phasing: Has Finance confirmed the "drag" of the increases across the next 12 months?
• Market Positioning Post-Review: Where does the company’s average compa-ratio sit now compared to the target market position (e.g., P50)?
• The "Retention Heatmap": Identify top performers who, even after the review, remain at high risk of poaching due to market tension.
• Tailored Communications: Move beyond the "standard letter." Ensure managers are equipped with "Total Rewards Statements" that show the full value of the package, including super, incentives, and benefits.

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Summary: The Shift to "Business as Usual"

By establishing a clear rhythm, focusing calibration on strategy rather than entry, and following a rigorous sign-off process, the annual review transforms. It ceases to be an administrative hurdle and becomes a powerful mechanism for reinforcing culture and driving performance.