Companies typically review employees pay and performance once each year, but market pay levels move continuously. Market pay levels typically increase over time because competing employers deliver salary raises to reward the performance of employees and to maintain the competitiveness of their pay levels.

To maintain competitiveness, companies must decide their policy for reviewing their pay practices, and whether to lead the market at the beginning of the year and lag behind at the end of the year; or to lag behind at the beginning of the year and lead at the end. These two pay calibration approaches are called “lead-lag” and “lag-lead,” respectively.

Before reviewing pay for the employee, review the competitive pay levels for the job. Many jobs are subject to change over time, due to internal and external factors including technology advances, industry changes, employers’ needs and incumbents’ capabilities. Therefore, reevaluate the job once a year and, if appropriate, select a new benchmark job and recruiting market.