How to conduct a salary review

Research from Totaljobs shows 78% of UK workers are satisfied with their salary, likely due in part to 74% of those who received a pay rise in the last year being satisfied with it.

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But how can your organisation conduct salary reviews that support talent attraction and retention? Let’s take a closer look.

What is a salary review?

Salary reviews are the process employers go through to assess staff salaries and determine if they accurately reflect performance, impact and expectations. 

There are a variety of factors that need to be considered during this process, including:

How often should salaries be reviewed?

Salary reviews should be conducted in line with organisational priorities and changes in the wider market. Annual pay reviews are common in many industries, generally at the end of the financial year when employers are reviewing budgets and planning for the year ahead.

Tip: Conducting reviews more regularly, for example bi-annually, can help your organisation better understand salary expectations and meet employee demands, thereby bolstering talent retention and attraction.

The importance of salary reviews

Effective salary reviews and subsequent pay rises that come as a result are vital to long-term organisational success. With that in mind, let’s explore the key benefits that come with comprehensive salary reviews.

Promoting fairness

Salary reviews are key to establishing that workers are compensated fairly for the work they do. 

For example, the process helps facilitate more transparency and equity in the workplace by identifying disparities between employees in the same role that can leave workers feeling underpaid or mistreated. 

As such, comprehensive salary reviews help to ensure that workers are compensated based on skills, experience and performance, as opposed to factors like gender or ethnicity. 

Retaining staff

The pay review process is central to retaining top-performing talent.

With 37% of workers looking to earn more money/ask for a pay rise this year, conducting pay reviews and identifying employees who deserve a raise can significantly improve retention. 

By boosting retention in this way, employers can also: 

1. Reduce hiring spend 
2. Improve employee satisfaction 
3. Enhance their reputation 

Tip: Salary reviews should be used as a tool to identify employees who may be at risk of leaving but could be persuaded to stay with a salary increase.

Boosting morale

Our research shows that many UK workers are struggling. Over half (53%) say they have cut back on leisure and social spending, while 32% cut back on essential spending and 29% have used savings, loans or credit cards to cover everyday costs.

• Decreased productivity
• Higher employee turnover 

With salary reviews, employers can award pay increase based on performance, introducing an element of fairness and transparency to the workplace. This helps ensure employees feel valued, improving morale and boosting engagement. 

Attracting talent

41% of workers plan to look for a new role in the next 12 months and 80% cite salary as the most important factor when choosing a job. As a result, compensation is clearly central to appealing to high-quality candidates. 

During the salary review process, employers can benchmark salaries using extensive data and the latest market rates. This makes it easier to craft compensation packages and salary ranges that appeal to talented jobseekers.

Staying compliant

Alignment with UK employment laws and regulations is essential for any successful organisation. Regular salary reviews play a central role in maintaining this compliance. 

That’s because salary reviews provide an opportunity to ensure an organisation’s compensation practices are fair and free from discrimination. For example, salary reviews allow you to verify that all employees are paid in accordance with the National Minimum Wage and National Living Wage standards.

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8 steps to conducting a fair salary review

Salary reviews are set to remain a strategic priority for employers looking to retain top performers and onboard talent. 

Let’s dive into the specific steps you can take to conduct pay reviews that align with organisational goals.

1. Review budgets

Before beginning the salary review process, first it’s crucial to undertake a budget review, as this assists in identifying the funds available for potential salary increments and staff bonuses. 

Taking a holistic approach to finances during this review can be hugely beneficial. This means working with finance teams to consider all relevant factors, including: 

• Revenue
• Expenses 
• Profit margins 

2. Outline objectives

Following a thorough budget review, the next step is outlining the overarching objectives with the salary review. 

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. It’s also an opportunity to consider external factors that may impact salary reviews, like: 

• Changes in the external market 
• Fluctuations in the wider economy 

3. Review job descriptions

The next stage in the process should be reviewing job descriptions. Doing so allows HR and managers to better determine if employees are being fairly compensated for what they bring to the organisation. 

This is also a good opportunity to assess whether any changes have occurred within a role since the last salary review was conducted. For example, if a member of staff has taken on additional responsibilities or gained new experience, they may be deemed as eligible for a salary increase.

Further reading

How to write an effective job description

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4. Analyse market data

Next in the salary review process comes the analysis of relevant data within the external job market. This should include researching industry standards, salary benchmarks for comparable roles and the cost-of-living in areas where the organisation operates.

Analysis of this data means comparing the compensation package your organisation offers with the wider market. With the insights obtained from this analysis, you can adjust salaries based on identified benchmarks, ensuring competitiveness with the industry.

5. Evaluate employee performance

Assessing staff performance is pivotal for any salary review. This entails examining each employee’s performance for a specific period and determining their eligibility for a salary increase or bonus. 

Remember, it’s crucial that objective criteria is used when evaluating performance. This includes identifying high performers who:

6. Introduce a rating system

Once performance has been evaluated, you need to determine the appropriate pay rise for identified team members.

A rating system helps make this decision based on pre-determined criteria as opposed to subjective opinions, thereby mitigating bias. 

A rating system needs to consider employee performance in a range of areas to establish a way for workers to excel beyond their day-to-day responsibilities and be rewarded. For example: 

• Teamwork
• Communication 
• Leadership

Tip: Relevant criteria should be considered for each role. For example, for employees based in sales, employers may decide to use their sales figures as key criteria for determining salary changes.

7. Explain and communicate

Salary transparency is on the rise, with 80% of talent reporting they avoid applying for roles with no salary information. As a result, communicating the value of salary reviews, how the process is carried out and the benefits it can have is a key part of the process. 

That’s because communication around the salary review process facilitates more transparency, allowing employees to gain a deeper understanding of the factors that determine compensation.  

This can include: 

• Guidance on the criteria used for conducting performance reviews
• Feedback on the final decisions made on salary changes

8. Collect feedback

feedback to evaluate and inform future reviews. This can be collected through: 

• Anonymous surveys
• Interviews
• Focus groups 

Employers can analyse the feedback they receive, incorporate relevant suggestions and communication changes to drive improvements. This can help refine the salary review process, address concerns, ensure fairness and building long-term loyalty across the workforce.

Tip: This process can become part of forming a culture of active listening and giving employees a voice in the workplace.

Building a sustainable salary review process

Conducting effective salary reviews requires consistency, transparency and alignment with both employee expectations and organisational goals. A well-structured approach ensures decisions around pay are fair, evidence-based and defensible. By combining objective performance data, market benchmarking and open communication, your organisation can build a process that builds trust and engagement across the workforce.

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