How to Conduct a Salary Review Step-by-StepMarch 26, 2020
Salary reviews are a typical part of most modern businesses that have employees. Despite the necessity of them, many business leaders are left scratching their heads on how to conduct a salary review properly.
In this article, we set out to break down the specific, actionable steps of salary reviews. We will also include information on how performance reviews are a key part of the annual salary review process.
So why is all of this important? It is because having a stable annual salary review process can help companies better achieve their goals overall. It also helps them retain high-performing employees, and better engage the low-performing employees.
Read on to learn about how to conduct salary reviews (and manage expectations while doing so).
Problems with conducting a fair review
First, let’s address the typical problems associated with salary reviews. After all, it is no easy feat.
For many organizations, salary reviews are a tedious, long process that in the end, still won’t produce the ‘right’ outcome despite the time investment.
What’s more, a salary review requires several discussions (between manager and employee) on employee performance and goals completed. This puts a lot of stress on managers and HR departments—especially when budgets are tight and the conversations are difficult.
But what makes a salary review hard is when there is no precedent set or system established for evaluating performance. Luckily, there are steps businesses can take to help alleviate this pressure. Read more about them and how to implement them into your business here:
1. Understand objectives
Step one of salary review is to understand objectives, from the top of the organization down to the individual employee. We have a series on goal-setting with OKRs you can read about here so you can ensure your business has a good goal-setting strategy in place.
Having objectives in place helps set the stage for expectations. Also, it helps both the manager and the employee have an overarching purpose to work towards.
Setting goals and objectives also help manage expectations and the reasoning behind performance and salary review results. It also helps avoid any negative surprises for those being reviewed. After all, salary reviews and pay raises should almost always be tied to the results delivered by the individual within the company.
2. Analyze market pay data
The next step is to get an update on the current pay data for specific role types and industries. But before searching for external information, be sure to first assess internal data. Look at current employee salaries and rates to understand the current state of salaries in the company. You might even want to conduct a pay equity analysis.
An internal assessment will help identify any pay disparities within the organization, so those can be rectified. Once you’ve completed that, there are many free data sources on salary such as:
It is important to check with multiple, trusted sources for scale and comparison when conducting this analysis. Many sources may also have some unreliable data, therefore it is good to collect data from more than one source.
3. Evaluate employee performance concerning salary
This is perhaps one of the most important steps in the annual salary review process. It is no secret that employees often determine their worth in the company by how much they’re paid (and how much of a raise they get). This is completely normal.
However, you also don’t want the sole reason for your employees to work hard is a potential pay raise. Giving out recognition, scheduling regular 1 to 1 talks, and deploying a 360-degree feedback model should all be part of employee performance, which feeds into salary review. Here are some of our other articles related to employee performance and engagement:
- The Importance of Continued Professional Development
- What is the Future of Performance Management?
- Building a Sustainable Business Through Employee Appreciation
There are many moving parts involved with salary review, many of which include employee performance. Leaders of the business must establish a structure for taking care of employees and working to maintain open lines of communication through 1 to 1 talks (and more). Doing this will help ensure a more fair annual salary review process that employees are happy with.
4. Consider factors most important in the organization for salary review
While performance is important in knowing how to conduct a salary review, there are other factors to consider, too which should influence any salary changes. These can be a combination of employee and company factors, such as:
- Organizational structure
- Company budget
- Company size
- Living costs & location
- Market and industry data
- Historical employee performance (if available)
- Length of service
- Years of experience
The above are just examples, but it’s important to ask questions and discuss among leadership what items are most important to the company when it comes to salary review, and how those factors should be implemented in the process.
5. Implement the right technology solution
For those wondering how to conduct a salary review, they should know that technology can improve the overall process. For example, Heartpace makes the integration of performance management and salary review completely seamless. Employee performance data like 1 to 1 talks, goal setting and achievement, satisfaction surveys, and 360 evaluation can be used to determine appropriate pay changes.
The Heartpace Salary Revision module will take into account employee performance, the current payroll system of the organization, and reports to come up with an analysis-based approach to salary review. This can help eliminate bias in salary review. It also helps HR and managers save a lot of time because they have the help of a robust system to take all of the complex factors of salary review into consideration.
Find out more about Heartpace Salary AI
to conduct bring together performance, salary, pension, benefits and
all extra data you need to make a smooth and fair salary review