How to Make Salary Review Process MatterDecember 19, 2019
The salary review process is an important component of a company’s overall success. It is heavily linked with performance reviews, after all, in any performance review employees are typically thinking: what does this end with financially? If you want to successfully retain top talent and achieve company goals, the salary review process is an imperative part of that process.
Here, we answer some commonly asked questions around salary review and give tips for how to have better salary review processes in your organization:
What is a salary review?
Salary evaluations go hand-in-hand with performance evaluation. Most of the time, at least once annually, an employee is reviewed on their overall performance and given an increase in salary, benefits, or a combination of both when they’ve done good work.
Performance evaluation is quickly changing and evolving to include more 1 to 1 talks between managers and employees. You can review our templates for how to carry out these kinds of meetings here.
Salary review also refers to comparing the salary of certain job titles within a company against the industry rate or average to see if the salary offered is competitive, or if changes need to be made. Geographic factors are taken into consideration too.
Why should you conduct a salary review?
Salary reviews as part of performance evaluations help you retain good talent and also recruit new talent. Many businesses do both in conjunction with one another, but you can do this however works best within your organization.
After all, money is still an important factor in overall employee satisfaction. As employees gain experience over time, they want to be recognized for their efforts and to be compensated appropriately.
But not only do salary reviews exist purely for the benefit of employees, but also organizations. Conducting internal salary reviews helps employers know if they’re underpaying employees but also whether they’re overpaying in any departments so they can adjust accordingly.
Overall, the following are the biggest reasons why you should conduct regular salary reviews:
To remain competitive
Employees today are more flexible than ever before in that they can take their skills anywhere. With plenty of options in the current market for employees to choose from, conducting salary reviews helps your organization stay competitive and keep high-quality talent working for the organization.
HR professionals within the organization should be keeping an eye on trends in employment and salaries. They should be able to access the most recent market data available so your organization has the best insights.
Global staffing firm Robert Half carries out regular salary research and claims that according to their data, 38% of employees leave their jobs as a result of “inadequate salary and benefits”.
To comply legally
The last thing you want in your organization is for your company to be in danger of “price-fixing”. Each country has its own unique laws on this topic, and as an organization, it’s imperative to know whether your company is complying.
Your organization must be relying on reputable market data for salary reviews as opposed to Internet searches and advice from people in your network to avoid any antitrust laws.
To be cost-efficient
The costs associated with employee turnover are far higher than the costs of increasing employee salaries and benefits. Your biggest investment is the people of your organization, so it is important to protect that investment by remaining competitive in compensation. Salary reviews help to achieve this.
To be fair
When an organization conducts regular salary reviews, it helps keep salary and benefits processes just and fair. Having HR personnel or teams rely on reputable industry data helps salaries in the organization to not skew in a specific direction and remain on-par with the rest of the industry for specific job types.
How do you conduct a salary performance review?
To effectively conduct a salary review, it’s necessary to understand the performance review process. The two main components that factor into salary reviews are:
- How well an employee performs their job
- How a certain employee’s job fits in with the larger labor market (specifically pertaining to salary + benefits)
Typically, an organization will conduct an employee’s performance review first (or evaluate the collection of performance evaluations conducted throughout the year) and then measure that against HR’s research for the typical rate for someone in that position in the job market.
It’s also important to conduct pay equity analyses which will further help provide the right data for salary reviews. We have an article here on salary negotiations as part of pay equity analysis.
For the more complex analysis part of this process, it helps to have a tool that will automatically calculate everything for you based on performance data collected throughout the year. Learn more about Heartpace software and how it can ensure fair salary reviews in your organization.
Combining the Hearpace ‘Performance Review’ and ‘Pay’ modules can help you create a legitimate framework for keeping salaries in your organization both legal and competitive. Not only that, but it will help ensure employee satisfaction!
What is considered on top of salaries?
While annual or monthly salary is an appropriate starting point, there are many other factors that should be taken into account as far as compensation goes. These are things like:
- Employee benefits
- Company perks
- Vacation time
Jobs themselves are constantly evolving along with company policies and benefits, so it’s crucial to take all of these factors into account when conducting salary reviews. When company leaders only evaluate salary, it’s only a small piece of the greater picture.
What are the reliable resources for conducting salary reviews?
In addition, public data from both national and local governments is a good indicator of typical salaries in your region. It’s important to pull from this data because salary rates change heavily based on the country and even the city (due to different costs of living). Be sure to factor in labor statistics data from your home country or countries where your organization operates to ensure salaries are on par with what is “typical” in those areas.
So how does salary review benefit my business?
With the rapidly-changing state of the job market as a result of technological evolution, new jobs with new skill types are popping up all the time. Salary reviews help your business not only remain competitive and fair with employee compensation, but also stay relevant with the changing job market.
It’s important to stay ahead of the game if you want to run an innovative organization no matter the industry you’re in. Salary reviews help give a more defined idea of job market and pay trends. It can even help you identify areas where the business is currently lacking talent and where it could start hiring more or help current employees transform in their jobs.
At Heartpace we can assist you with the tools your organization needs to take care of the whole process from performance to salary review and much more. Contact us today for more insights.