An HR Leader’s Guide to Conducting Salary Reviews

Imagine you’ve worked the same job for over 20 years, and the pay is still the same as the day you were hired. 

Would you stay or start looking for new opportunities? Probably the latter, so you can hardly expect your employees will be engaged or striving to improve if you don’t offer compensation that matches their performance and average market trends.

If you are looking for ways to improve employee satisfaction and retain top performers, salary reviews are a crucial step. Compensation can be both monetary and non-monetary (think: more paid time off), but either way, you need to keep up with the competition. SHRM reports that, as of December 2021, 51% of employers expect average merit increases of at least 5%. How does your organization compare?

What Is a Salary Review?

As an HR professional, you get to handle a variety of reviews, from performance reviews to employee evaluations. But have you ever thought about evaluating the salaries of your employees to see if they reflect the work for that position? The primary purpose of a salary review is to determine if employees should receive a salary increase based on their performance and average market salaries. Similar to a performance review, a salary review includes an HR representative or line manager and individual employees.

The frequency of salary reviews depends on the needs of your company and employees, but most standards suggest an annual salary review. It’s a great time to reward high-performance work and incentivize employees to stay in their current positions.

Why Are Salary Reviews Important?

There is a fair amount of overlap between performance and salary reviews, so you may be wondering why you should bother with the latter. The short answer is that compensation plays a huge role in both job performance and employee retention. Eighty-one percent of workerssay that their productivity improves when they are paid fairly. If the pay doesn’t match the work, people will find better positions that do. It is important to reward high performers if you want them to stick around, and regular salary reviews can help ensure that your company is offering competitive compensation. 

Not only does it provide a chance to align compensation with performance, it also facilitates open and honest communication between employees and their employers. When there is open conversation around sometimes awkward topics like money, employees are more likely to feel comfortable bringing up their concerns related to the role and accompanying salary. And of course, all of these things combine to improve morale, engagement, and company culture.

What Is Discussed in an Effective Salary Review?

There are a few main things to look at during a salary review: the employee’s current pay, the market average pay, and the employee’s performance. It is important to offer pay that is comparable to similar positions at other companies, but most salary increases are a result of positive performance. Through your research and discussion with the employee, you can determine whether the current compensation reflects their performance or if they deserve higher pay.

Along with discussions about compensation, a salary review is a good time to discuss employees’ career aspirations and their goals for the future. If you do, you can examine how employee goals align with company goals and discuss opportunities for growth within the company.

Unfortunately, not all salary reviews come with good news. If you have an employee who is not getting a raise, take the time to discuss the reasons for this decision with them, as well as ways that they can improve their performance to increase the chance of a raise at the next review.

How to Prepare for a Salary Review

Preparation is key to ensuring that the review is a positive experience for all parties involved. So what do you need to do beforehand?

For the Employee

If you know that you have a salary review coming up, you may want to take the time to research the salaries of comparable positions so that you can advocate for fair compensation. You can also prepare a list of your accomplishments since the last review to demonstrate your performance and how you have earned an increase in pay. And if you are interested in growth opportunities, come armed with some goals and objectives that demonstrate you are being proactive about your future with the company. 

For the HR Representative

HR representatives or managers responsible for salary reviews should research the market salary rates for positions within their organization to determine how the company’s pay compares to others in the industry. You can check out previous reviews for notes on any goals that were set so that you can measure progress and reward it accordingly. Check for any disparities in the pay rates at your organization and make sure you are consistent about the compensation for similar positions and workloads. 

Part of the salary review process is training managers on better performance management and communicating about company goals and objectives so that everyone is on the same page and employees have the opportunity to excel.

How to Conduct a Salary Review (Step-by-Step)

Evaluating employees’ wages ensures people take home the paychecks they genuinely deserve. But the right way to conduct a salary review isn’t always crystal clear. Where do you begin, and what steps do you follow from there? 

Step 1: Check Your Budget

Determine how much your company can comfortably spend on salary increases without breaking the bank. Having a firm grasp of the numbers will help you establish realistic benchmarks, ranges, and expectations. 

Step 2: Establish the Basis of the Review

You don’t wake up one day and decide to alter the pay of just about any employee without valid grounds. Successful salary reviews are based on justifiable reasons rather than relying on guesswork or gut feeling. 

To conduct an effective salary review and ensure you pay everyone fairly, you need to ask yourself two questions: 

• What are the objectives of your salary review? Whether you want to reward highly productive staff members, offer a fat paycheck to retain top talent, or provide competitive salaries in your industry and location, you need to know why you are re-evaluating wages. 
• What factors will you consider to determine who deserves a raise? Common ones include the number of years an employee has worked in a business, advancement to new job titles with more responsibilities, and a worker meeting particular requirements (such as completing specific training). Your company’s effort to ensure equal pay for people with the same job roles can also call for a salary review.

3. Assess Job Description and Individual Employee Performance

Before increasing an employee’s salary, determine whether the person fulfills their responsibilities. And there’s no better way to achieve that than revisiting someone’s job description. 

Check for which duties you hired someone. Do they perform them satisfactorily? Over time, have they taken on additional tasks outside the original job description? If yes, that hardworking employee may be eligible for a raise. After all, the worker has earned it by going the extra mile instead of doing the bare minimum. 

But whether a staff member fulfills their duties might not be enough to justify a wage boost. Consider how they’ve helped your business reach where it is today. A great way to determine this is to identify an individual’s professional achievements (employee recognition awards in the company), check their performance evaluations (for the current and previous years), and leverage feedback from the person’s colleagues. 

4. Review Market Data

What are businesses in your sector and location paying employees for a particular role? You want to offer people at least the market value salary — the typical compensation for similar positions in your industry. Otherwise, you risk losing talent to competitors who offer better pay. That’s especially true if you consider a small paycheck is one of the reasons most workers (63%) quit their jobs and look for employment elsewhere, according to a 2021 study by Pew Research Center. 

5. Explain Your Decisions

In this step, you inform employees why you’ve chosen to increase, decrease, or maintain their current income. If you decide to raise salaries, you don’t have much explaining to do since people are likely to  will welcome the good news with open arms! 

The problem occurs during pay cuts (or when an employee’s salary remains unchanged). Affected individuals will, understandably, be upset — there’s nothing pleasant about an employer slashing a chunk of your paycheck. In this instance, it’s best to elaborate clearly and plainly how (and why) you arrived at your decision. Maybe a salary reduction is the lesser “evil” compared to employee termination during challenging times in the firm. Or perhaps the company is demoting the worker (hence the wage cut) due to organizational restructuring or poor job performance. 

Whatever the reason for reducing or improving someone’s income, tell them exactly when the changes will take effect.

If You Need Better Benefits, Talk to Wellhub

When potential employees consider your company, they want to know that you offer competitive pay and benefits that they can actually, well, benefit from. Conducting annual salary reviews can be a powerful tool that helps your company stay at the forefront of the competition and improve employee satisfaction and retention. 

For more information about how the benefits you offer can make a difference, talk to a Wellbeing Specialist at Wellhub!

References

• Miller, S. (2022, January 28). Wages and salaries up 5% for private industry workers in 2021, less than inflation. SHRM. https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/wages-and-salaries-up-5-percent-for-private-industry-workers-in-2021-bls-reports.aspx
• Indeed Editorial Team. (n.d.). The importance of fair pay and salary transparency. Indeed. https://www.indeed.com/lead/the-importance-of-fair-pay-and-salary-transparency
• Indeed Editorial Team. (n.d.). What is a salary review? Indeed. https://www.indeed.com/career-advice/pay-salary/salary-review
• HiBob. (n.d.). Salary review. HiBob. https://www.hibob.com/hr-glossary/salary-review/
• Factorial HR. (n.d.). What is a salary review? The ultimate guide. Factorial HR. https://factorialhr.com/blog/what-is-a-salary-review-the-ultimate-guide/
• Parker, K., Horowitz, J. M., & Minkin, R. (2022, March 9). Majority of workers who quit a job in 2021 cite low pay, no opportunities for advancement, feeling disrespected. Pew Research Center. https://www.pewresearch.org/short-reads/2022/03/09/majority-of-workers-who-quit-a-job-in-2021-cite-low-pay-no-opportunities-for-advancement-feeling-disrespected/
• Indeed Editorial Team. (n.d.). How to conduct a salary review. Indeed. https://hk.indeed.com/career-advice/pay-salary/how-to-conduct-a-salary-review
• Indeed Editorial Team. (n.d.). Types of raises. Indeed. https://www.indeed.com/career-advice/finding-a-job/types-of-raises