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Ned Smith
9 min read

8 Steps to conducting a fair salary review

Regular salary reviews are vital for employers looking to retain high-performing employees. Learn how to conduct this process fairly and objectively.

Two colleagues conducting the salary review process
According to our research, over a third of UK workers are unhappy with their current level of pay. 41% feel their salary doesn’t reflect the time and effort they put into work, while 37% say it is not enough for them to live on comfortably.

With 73% of jobseekers citing salary as the biggest influence on their decision to apply for a new role, it is increasingly important for employers to implement compensation and reward strategies that match the expectations of their workforce. In addition to attractive benefit packages, regular and comprehensive salary reviews help to ensure employees feel engaged and remain productive.

What is a salary review?

A salary review is the process employers use to assess staff salaries and determine if they accurately reflect performance and changes in the cost of living. As a result, this requires analysis of numerous factors, including:

  • Current salary and benefits
  • Market conditions
  • Roles and responsibilities
  • Experience
  • Performance
  • Organisational budget
  • Inflation

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

How often should salary reviews be conducted?

Salary reviews can be conducted as needed depending on organisational priorities or changes in the wider market. Annual salary reviews are commonplace, generally occurring at the end of the financial year when employers are reviewing budgets and making plans for the year ahead.

Conducting reviews on a more regular basis, such as bi-annually, can help employers stay ahead of the curve and better understand employee salary expectations and identify those who may be struggling.

Why are salary reviews important?

Implementing effective salary reviews, and any subsequent salary increases that come as a result, is vital to the long-term success of any organisation. Let’s dive into some of the ways you can benefit from undertaking comprehensive salary reviews.

Promote fairness

Salary reviews are key to establishing that workers are fairly compensation. For example, the process helps to facilitate more transparency and equity in the workplace by identifying disparities between employees performing the same role.

As such, a comprehensive salary review helps to ensure that workers are compensated based on their skills, experience and work performance, as opposed to factors like gender or ethnicity.

Retain staff

The pay review process is central to helping employers retain their top performing talent. 71% of workers say a higher provides them with greater job satisfaction, while 69% say it increase their loyalty to their employer.

Given these findings, salary reviews should be used as a tool for employers to identify employees who may be at risk of leaving the organisation and determining if they can offer them a pay rise in order to stay in the long-term.

Boost morale

57% of workers are worried about their salary amidst the rising cost of living and 1 in 6 say they are currently struggling to afford all their essential living expenses, both of which can contribute to poor morale and productivity in the workplace.

By conducting regular salary reviews, employers can award pay increases based on performance reviews and introduce an element of fairness and transparency to the workplace, all of which ensures employees feel valued and improves morale.

Attract talent

Our research shows that just 12% of UK workers are very satisfied with their current salary. As a result, competitive salary and benefit packages make it easier for employers to stand out to talent in a competitive hiring landscape.

With a comprehensive salary review process, employers can benchmark their salaries using data and market rates, making it easier to craft compensation packages that appeal to candidates and jobseekers.

Stay compliant

Remaining in compliance with various UK employment laws and regulations is crucial for any organisation. Conducting regular salary reviews is one way employers can guarantee they are not engaging in any discriminatory practices.

For example, salary reviews are a great opportunity to ensure that all employers are compensated in line with the National Minimum Wage and National Living Wage.

8 Steps to conducting a salary review

With 2 in 5 UK workers considering changing jobs in the next two years and 73% citing a higher salary as the biggest influence on their decision to apply for a new role, salary reviews are set to remain a strategic priority for employers looking to retain their top-performers and onboard new talent.

Let’s delve into the specific steps required to conduct a pay review that aligns with the goals of your organisation.

1. Review the budget

Before beginning the process of conducting a comprehensive salary review, first it’s to undertake a budget review. This will assist in identifying the funds that are available for potential salary increments and staff bonuses.

Taking a holistic approach to finances during this budget review can be hugely beneficial at this stage. This means considering all relevant factors, including:

  • Revenue
  • Expenses
  • Profit margins

2. Outline objectives

Following a thorough budget review, the next stage is outlining the overarching objectives of the salary review process. This might involve identifying which positions or departments are most urgently in need of salary adjustments and determining the budget that should be allocated to each area of the organisation.

This is also an opportunity to consider any external factors that may impact salary reviews, such as:

  • Changes in the external market
  • Fluctuations in the wider economy, including inflation

3. Review job descriptions

The next step in the process should be reviewing employee job descriptions. Doing this allows HR and managers to better determine if employees are currently being fairly compensated for their roles, responsibilities and the value that they bring to the wider organisation.

During this review of job descriptions, it can also be helpful to assess whether any changes have occurred within the role since the last salary review. For example, if a member of staff has taken on additional responsibilities or gained new levels or experience, they may be deemed eligible for an increase in salary.

4. Analyse market data

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

Analysis of this nature facilitates the process of comparing the compensation packages an organisation currently offers with those if the wider industry. Using the insights obtained from this analysis, employers can start to provide salaries based on benchmarks that allow them to remain competitive in the hunt talent.

5. Evaluate performance

Assessing and evaluating employee performance is a pivotal aspect of any fair salary review. This entails looking at each employee’s performance throughout the previous year and subsequently determining their eligibility for a salary increase of bonus.

It’s crucial that objective criteria is used when evaluating performance at this stage. This includes identifying high performers who:

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

6. Introduce a rating system

Once employee performance has been evaluated, employers should determine the appropriate pay increase for the identified team members. A rating system helps make this decision based on pre-determined criteria as opposed to subjective opinions, thereby overcoming biases.

The criteria used should also be relevant to each role. For example, for employees based primarily in sales employers may decide to use their sales figures as the primary criteria when determining salaries.

This rating system should also consider employee performance in other areas in order to establish a way for workers who excel beyond their day-to-day responsibilities to be rewarded, including:

7. Explain and communicate

Communicating the importance of salary reviews, how the process is carried out and the long-term benefits it can have to the wider workforce is an important part of the process.

That’s because 54% of UK workers feel uncomfortable negotiating pay, which means transparency when it comes to determining salary is vital. This should include the provision of clear and concise guidance on the criteria used for conducting performance reviews and the final decisions made regarding salary increases.

8. Collect feedback

After completing the review and implementing the agreed upon adjustments, it’s time to gather employee feedback to evaluate its effectiveness and inform future reviews. This can be collected using anonymous surveys, focus groups and interviews.

Employers can then analyse this feedback, incorporate relevant suggestions and communicate future changes to drive continuous improvement. This can help to refine the salary review process, address concerns, ensure fairness and build long-term loyalty that contributes to success.