The simple increase in an employee’s salary is a delicate process called the salary (or pay) review. Salary reviews are usually conducted annually. It is a process whereby employers determine if the employees’ salaries are fair as well as ensuring that salaries are reflecting what the market is offering for similar positions.
The process is generally based on the business performance, employee performance and the market rates. Unfortunately, the process can be quite hard if there is no system in place that evaluates the business, and more importantly, the employee performance. Therefore, careful planning is needed to get this process right (and fair).
It is an important process because having such a process in place can improve the company’s recruitment, retention, satisfaction, engagement and performance. It will therefore also improve the company’s culture.
A very large percentage of the time of the process is dedicated to planning. Employers need to identify aspects related to time, budget and how the actual review will take place. Training may need to take place to make sure that whoever is involved in the review is well equipped to handle any issues that may arise from the review itself.
The timing of the salary review varies from company to company. There are companies who review depending on their financial year, others on the calendar year or even, the employee’s work anniversary. There is no right or wrong time, as long as there is a systematic process in place that remains fair and transparent throughout.
The budget needs to be decided upon prior to the start of the process. How much can the company afford to spend on salary increases? This decision is taken hand-in-hand with the finance department of the company.
The type of increases the company will be giving also varies from company to company. A company may decide to award the same percentage salary increase throughout, irrespective of an individual’s performance, or may opt for pay rises to particular departments or teams.
Whatever decision the company takes in terms of the above, companies should not move forward to conducting the review if the objectives of the review are not well defined.
A tip from me would be to document this process. Let the process be as transparent as can be. Documenting it would also help in reviewing the process for the following year and implementing any improvements that may be required.
The salary review process must be communicated to all employees. If this doesn’t happen, it can adversely affect the performance and engagement of employees. All managers need to also understand the objectives of the process.
Typically, companies start by looking at both internal and external salary data. Companies need to determine what the going market rate for every position within the company is. A decision may need to be taken as to whether they will opt for commissioning a salary survey. This is a salary analysis of the jobs in the market. This exercise will analyse external jobs with similar responsibilities and match them with internal jobs, to identify the market rate for each position. During the benchmarking process, companies decide what their ‘pay posture’ is – that is, the alignment of the salaries with the market pay practices. An independent and commissioned salary study will be beneficial as it helps identify any salary disparities and can be rectified throughout this process.
Once this data is collected, ideally employee performance is evaluated at this stage. Therefore, if a performance appraisal system is in place, it is now the time for managers to schedule their appraisal meetings. A suggestion here is to make sure that there are benchmark criteria so as to ensure that everyone is treated fairly. A rating system may be beneficial and can be easier for employees to understand. The appraisers would need to be trained well on the system to make sure that they can conduct appraisals without difficulties.
This performance feedback will feed into the other factors mentioned above (budget, market data) and will finalise the decision on what type of increase (if any) an employee will be receiving.
Once this is decided, employees need to be informed in writing on what the change in salary is going to be and when the change will become effective.
Join us for our upcoming Manage the Annual Salary Review MasterClass which will be streamed ONLINE on the 6th and 7th of September, 2021 and manage review data including consolidation and approvals.