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Ned Smith
7 min read

8 Steps to conducting a fair salary review

Salary reviews are a vital tool for employers looking to attract and retain top talent, while keeping budgets in check. In this article, we look at how to conduct fair and objective salary reviews in eight simple steps.

Two colleagues conducting the salary review process

Over half (52%) of employees want to see pay rises in line with, or higher than, inflation to stay with their current employer. As a result, employers need to develop compensation packages that help them keep high-performers within their organisation.

In addition to considering the benefits packages they can offer, employers should conduct comprehensive salary reviews. By ensuring that workers are rewarded fairly for their performance, these reviews help you retain talent and ensure productivity remains high across your workforce.

What is a salary review

A salary review is the process whereby an employer assesses staff salaries to determine if these accurately reflect performance and changes in the cost of living. As such, this requires analysing several factors, including:

  • Current salary and benefits
  • Market conditions
  • Job responsibilities
  • Experience
  • Past performance
  • Company budget
  • Inflation

Once these factors have been taken into consideration, employers can move on to deciding what, if any, adjustments are necessary.

These reviews can be conducted as needed depending on company policies or changes in the market. Bi-annual or annual reviews are the most commonplace, generally occurring at the end of the financial year when employers are reviewing budgets and making plans for the year ahead.

Why are salary reviews important?

Implementing effective and regular salary reviews within your organisation is important for several reasons. Let’s dive into some of the ways you can benefit from undertaking comprehensive salary reviews in your organisation.

Ensuring fairness

Firstly, salary reviews help to establish that employees are fairly compensated for their work, facilitating more transparency and equity in the workplace by identifying disparities between employees performing the same role. As such, a comprehensive review will guarantee workers are paid based on their skills and experience, as opposed to gender or ethnicity.

Retaining staff

Comprehensive salary reviews are also key to retaining talent. Over half (54%) of workers looking to leave their current job say a pay rise in line with inflation would encourage them to stay. As a result, salary reviews should be used as a tool to prevent top talent leaving your organisation in pursuit of a higher salary.

Increasing morale

By introducing an additional element of fairness and transparency to the workplace, salary reviews help to boost morale, making employees feel valued in their role. This in turn can contribute to increased job satisfaction and employee retention.

Attracting talent

Salary reviews can also be used to help employers attract quality candidates. Offering competitive salaries and benefits makes it easier to stand out from the competition and receive more applications from your ideal candidates.

Staying compliant

Finally, salary reviews keep your company compliant with employment laws and regulations. By undertaking salary reviews on a regular basis, you can guarantee you are not engaging in discriminatory practices by providing fair compensation packages to your entire workforce.

Steps to conducting a salary review

Now we’ve established why an effective salary review process is important, let’s move on to the specific steps you can take to conduct employee salary reviews that work for you.

1. Review budget

Before beginning the process of conducting a comprehensive salary review, first employers need to review their budget. This procedure assists in identifying the funds available for potential salary increments and staff bonuses.

Employers should look to take a holistic approach to their finances during the initial budget review. This means considering all relevant factors, such as revenue, expenses, and profit margins.

At times, businesses may need to facilitate collaboration with the finance department or an external accountant. This helps to ensure that the budget is as accurate and up to date as possible before the process continues.

2. Outline objectives

Once the budget review is complete, the next step is outlining the objectives of the salary review process. This may involve identifying which positions or departments are most in need of salary adjustments and how much of the budget should be allocated to each area of the business.

At this stage, employers should also take time to consider any external factors that may impact their salary reviews, such as changes in the external market or fluctuations in the wider economy, including inflation and the rising cost of living. Taking these factors into consideration contributes to a fairer and more equitable process.

3. Review job descriptions

The next step employers should take is reviewing job descriptions within their organisation. By doing so, managers and HR can better determine if employees are being compensated fairly for their roles, responsibilities and the value that they bring.

During this review of job descriptions, it’s also useful to assess whether any changes have occurred in the role since the last salary review was conducted. For example, if an employee has taken on additional responsibility or gained new skills or experience, they may be deemed eligible for a salary increase.

4. Analyse market data

The fourth stage of conducting a fair salary review requires the analysis of relevant data in the external job market. This includes researching industry standards, salary benchmarks for comparable roles, and the cost of living in areas where your organisation operates.

Performing a comprehensive analysis of this data enables you to compare the compensation packages you offer with those of the wider industry. Using the insights gained from this analysis, your organisation can provide salaries based on benchmarks that keep you competitive.

5. Evaluate performance

Assessing performance is a pivotal aspect of the salary review process. This stage entails evaluating each employee’s performance during the preceding year and determining their eligibility for a salary increase or bonus.

Objective criteria should always be used when evaluating performance. This includes identifying high performers who:

  • Meet or surpass role expectations
  • Demonstrate requisite skills
  • Undertake additional responsibilities
  • Exhibit exceptional leadership abilities

It’s key to conduct these performance evaluations in a fair, objective, and consistent manner for all employees in your organisation.

6. Introduce a rating system

Once employee performance has been evaluated, you need to determine the appropriate pay increases for eligible team members. A rating system helps you make this decision based on objective criteria as opposed to subjective opinions.

This rating system needs to be based on a set of predetermined criteria relevant to each role. For example, for employees with roles based primarily in sales, you may decide to use their sales figures as the primary criteria when you determine salaries.

Your rating system should also consider each employee’s performance in other areas, such as teamwork, communication skills and their long-term potential within the business. This helps to establish a way for workers who excel in these areas to also be rewarded.

7. Explain and communicate

Communicating to your workforce the importance of conducting a salary review, including how it can benefit them and the organisation, is an important part of the process. Only 62% of workers understand how they can ask for a salary performance review at work, with women feeling more in the dark than men (69% for men vs 57% for women).

As a result, transparency in the process is crucial, including the provision of clear and concise guidance on the criteria used for conducting performance reviews and the final decisions made concerning salary increases.

8. Collect feedback

After completing the review and implementing the necessary adjustments, it’s time to gather employee feedback to evaluate its effectiveness and inform future reviews. You can collect this feedback using anonymous surveys, focus groups, interviews, and regular check-ins to gauge employee satisfaction.

Employers should look to analyse feedback, incorporate relevant suggestions and communicate changes to their workforce to drive continuous improvement. This will help to refine the end-to-end process of a salary review, addressing concerns, fostering fairness, enhancing satisfaction and building long-term loyalty that contributes to success.