How to conduct a salary review
Frequent salary reviews are vital to keeping employees engaged. Learn how to keep up with industry standards of pay and retain your top performers.
Totaljobs’ new research shows that over a third (27%) of UK workers are unhappy with their current level of pay. Consequently, 39% of employees intend to job-hunt within the next year, aiming for an average 4.5% salary boost.
With 72% of jobseekers citing salary as the biggest influence on their decision to apply for roles, it is increasingly important for employers to implement compensation strategies that match candidate and employee expectations. While benefit packages are an important part of this, regular and comprehensive salary reviews are also crucial.
In this article, we’ll cover everything you need to know about salary reviews so you can ensure the compensation you offer helps attract and retain the talent you need.
What is a salary review?
A salary review is the process employers use to assess staff salaries and determine if they accurately reflect performance, impact, and employee expectations.
Several factors need to be considered when looking to carry out a successful salary review for a given employee or role, including:
- Current salary
- Benefit offerings (financial and non-financial)
- Market conditions
- Changes in the cost of living
- Roles and responsibilities
- Experience
- Performance
- Organisational budget
- Inflation
Once each of these factors has been taken into consideration, employers can move on to deciding what, if any, adjustments are necessary to employee salaries.
How often should salaries be reviewed?
Generally speaking, salary reviews can be conducted as and when needed depending on organisational priorities or changes in the wider market.
Annual pay reviews are commonplace, generally occurring at the end of the financial year when employers are reviewing budgets and making plans for the year ahead.
Importance of salary reviews
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 compensated fairly for the work they do.
For example, the process helps to facilitate more transparency and equity in the workplace by identifying disparities between employees performing the same role.
Disparities in pay can leave employees feeling they are being underpaid, or mistreated. 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.
28% of workers say they plan to look for a new job if they don’t receive their desired pay rise this year. As a result, regularly conducting salary reviews and identifying employees who deserve a raise can significantly improve retention. This, in turn, helps employers reap the benefits of:
- Reduced hiring costs
- Improved employee satisfaction
- An enhanced reputation
Boost morale
Currently, 63% of workers are satisfied with their salary, a decline of 3% from the previous year, while three in five express concerns about their financial situation due to the rising cost of living.
If these sentiments are left unaddressed, they can lead to a noticeable decline in workplace morale, resulting in decreased productivity and higher turnover rates.
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. This helps to ensure that employees feel valued and incentivised, improving morale and boosting employee engagement.
Attract talent
With more than a third of workers planning to look for a new job in the next year to obtain a higher salary, competitive pay and benefits are clearly vital for attracting high-quality candidates.
So, by providing comprehensive compensation packages, employers can stand out in a competitive job market and effectively appeal to the talent they need.
With a comprehensive salary review process, you can benchmark salaries using data and market rates, making it easier to craft compensation packages and salary ranges that appeal to talent jobseekers.
Stay compliant
Staying compliant with UK employment laws and regulations is essential for any organisation.
Regular salary reviews play a key role in maintaining this compliance. These reviews provide an opportunity to ensure that your organisation’s compensation practices are fair and free from discrimination.
For instance, salary reviews allow you to verify that all employees are paid in accordance with the National Minimum Wage and National Living Wage standards.
8 steps to conducting a fair salary review
Given employee and jobseeker attitudes towards pay, 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 you can take to conduct a pay review that aligns with the goals of your organisation.
1. Review the budget
Before beginning the process of conducting a salary review, first it’s important 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 working with your finance team to consider all relevant factors, including:
- Revenue
- Expenses
- Profit margins
2. Outline objectives
Following a thorough budget review, the next stage is outlining the overarching objectives associated with the salary review process.
For example, 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 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 of 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 market pay data within the external job market.
This should include researching industry standards, salary benchmarks for comparable roles, and the cost of living in any areas where the organisation operates.
Analysis of this nature means comparing the compensation packages an organisation currently offers with those of the wider industry. Using the insights obtained from this analysis, you can start to adjust salaries based on identified benchmarks, thereby ensuring that your organisation remains competitive in the hunt for talent.
5. Evaluate employee 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 or bonus. At this stage, it’s also a good idea to check the contract terms of each employee to make sure anything related to bonuses or salary increases is taken into account.
It’s crucial that objective criteria is used when evaluating performance. This includes identifying high performers who:
- Meet 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 can help make this decision based on pre-determined criteria as opposed to subjective opinions, thereby helping to mitigate any potential 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 to establish a way for workers who excel beyond their day-to-day responsibilities to be rewarded, including:
- Teamwork
- Communication
- Leadership
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 in several ways, such as:
- Anonymous surveys
- Focus groups
- Interviews
Furthermore, this can form a crucial part of creating a culture of active listening and giving your employees a voice in the workplace.
Employers can then analyse the feedback they receive, 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.
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