How to Conduct a Salary Review for Your Employees

How to Conduct a Salary Review for Your Employees

30 January 2024

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Conducting a salary review is an essential process for any organisation aiming to maintain a motivated and engaged workforce. Given the current cost of living crisis, many employees are looking to their employers for support in the shape of a salary increase. By conducting a salary review, employers are showing that they are listening to these concerns. But they need to balance any increases in salary with their affordability, particularly given that business costs are also sky rocketing in some cases.

Here’s our guide on how to conduct a salary review for your employees to make sure that the process is fair and objective.

Establish clear objectives

Before embarking on the salary review process, it’s vital that you define your objectives as a business. This allows you to understand the overall aim of what you are trying to achieve. Some examples of what your objectives might include are:

  • Aligning salaries with the going market rate
  • Rewarding high performers
  • Addressing issues of inequality in pay
  • Motivating employees for future performance
  • Updating salaries to take account of changes in national minimum wage rates in order to maintain appropriate differentials

Understanding your goals will help guide the entire process and ensure that the review has a clear focus which is understood by everyone. This also allows it to be as effective and valuable as possible.

Gather relevant data

Having access to relevant data is crucial to getting the most out of a salary review process. As a business you will have a range of internal data that can be put to good use. Data on existing salaries or hourly rates is vital so you can understand the current position. You can then model future salaries to fully explore the financial commitment and any impact on specific groups of staff. If you are factoring performance information into the salary review, then you will also need to have data about performance reviews and appraisals. You’ll also want any targets or key performance indicators (KPIs) that staff are working towards.

Using relevant external salary data also ensures your review is as comprehensive as possible. This benchmarking should enable you to pitch any salary increases with where you want to sit in the market. This data might come from industry salary surveys, online salary databases, or any job boards which offer this function. You could also engage with relevant third parties who specialise in salary benchmarking.

Analyse the data

Once you have collected all the necessary data, it’s time to start crunching the numbers. Here are some ways you might want to analyse your data:

  • Current salary positioning: You may want to compare your employees’ salaries against relevant industry benchmarks.
  • Performance correlation: You could evaluate how individual performance aligns with current salaries and if this is effective.
  • Internal equity: Ensure fairness across employees in similar roles and with similar experience and performance levels.

Determine adjustments

Once you have completed the first stage of your analysis, and you have a set of new salaries to consider, you’ll need to determine necessary salary adjustments in relation to a number of factors:

  • Market adjustments: Align salaries with industry standards and remember that external salary data may be affected by company location, size of company, and other factors so it’s not always possible to compare like with like. For example, statistics provided by Statista show a range of median annual earnings across different regions of the UK – from £31,200 in the North East, to £44,370 in London – so the going rate for the same job will vary depending on location.
  • Merit increases: If your internal data shows that you have individuals or particular groups of staff who are consistently performing at a higher level than others, you may wish to adjust their salaries to recognise this performance.
  • Equity adjustments: Correct any disparities to ensure fairness across your employees.
  • Differentials: If your approach to salaries or hour rates is to track them at a fixed amount or percentage above the national minimum wage, when that rate changes you need to review that differential and assess its impact. Ask yourself, is that approach affordable for the business? Does changing it potentially bring salaries of some staff closer together which may cause issues and perceptions of their value to the company?

It’s crucial to take a more holistic view of the business’ financial status and create a budget for salary adjustments which it aligns with your organisation’s financial capacity. It’s pointless to increase salaries significantly if by doing so you are going to jeopardise the financial sustainability of the company.

Communicate with managers

Communication during a salary review process is key. A lack of information and communication can create a void which is then often filled with misinformation. Engage your managers in the salary review process and provide them with the necessary data and guidelines. You should empower them to discuss salary changes with their team members. Remember, managers should:

  • Understand the rationale behind adjustments
  • Be prepared to explain decisions to employees
  • Address any concerns or questions that may arise

Conduct individual meetings

As above, communicating with staff is imperative so that they are informed about how and why decisions relating to their salaries are made. Schedule one-on-one meetings with each employee to discuss their salary review outcomes. During these meetings, you should:

  • Explain the basis of the salary adjustment
  • Highlight, if relevant, any connection between performance and salary
  • Invite any questions or feedback

Transparency and clear communication are fundamental to ensure employees understand the outcomes.

Document and implement changes

Once changes have been communicated, you need to make sure they are documented in writing as a salary increase represents a contractual change. Don’t forget to include the date that any changes are effective from, and make sure that payroll are prepared and aware of any changes they need to make.

Monitor and review

After implementing salary changes, monitor their impact on employee satisfaction and performance. This could be done through a simple staff survey. It’s also good practice to review your process to identify any changes which may be made in future. This allows for the process to remain relevant and effective in an ever-evolving job market.

Speak to our experts today

Conducting a salary review is an important process for both the employer and employee, but we hope our guide will help you successfully conduct a salary review that is fair and objective. If you have any questions at all, or you’re looking for more advice, don’t hesitate to contact our experts today.

If you’re looking to implement HR software in your business, take a look at what HRX can offer you. You can book a demo with our team today or sign up to our FREE 30 day trial and try it out for yourself!

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