The Effects of Salary Review on Employee Retention

Salary Review

The Effects of Salary Review on Employee Retention

16 Nov, 2021

A Glassdoor survey found that for employees who leave a job, 45% of them do so because of their salary. Low wages make employees feel underappreciated and are the leading cause of staff turnover. Salary review is a crucial part of employee retention since it can increase engagement, motivation, and the productivity of your employees. 

In many companies, the process of determining and reviewing salaries is spontaneous and based on subjective assessments. This often leads to employees feeling underpaid and lacking confidence in their skills.


Let’s dive deeper into why employers shouldn’t ignore these pitfalls of salary review and how to make the process more consistent and beneficial for everyone involved.

What is a Salary Review?


A salary review is the process of determining whether an employee is paid accurately, with regards to their skills, achievements, position, and so on.  

The process is related to a performance review a meeting with an employee aimed at discussing their work and future goals at a company. 


A consistent salary review should consider the roles and responsibilities, progression, achievements, expectations, whether an employee is satisfying them, areas of improvement, and new goals. During the process, new job requirements for future success should also be specified.


Why is Employee Retention Such a Big Deal?


Employee Benefit News reports that the average business loses 33% of an employee's yearly salary to replace one worker. That equals to:

  • $12,000 to change a working employee earning $36,000 per year

  • $20,000 to change a manager earning $60,000 per year

  • and $50,000 to replace an exec securing $150,000 annually


The costs related to employee turnover include advertising, interviewing, screening, and onboarding. Adding all this together and then having an employee leave your company after a few months is the worst possible scenario as it maximizes the amount of time and money sunk into hiring and training. Once all is said and done, you will have to start the process over again.


Transparent, Unbiased Salary Review as a Retention Strategy 

As inadequate salary and benefits are one of the main reasons for employees leaving a company. Stagnation in salary growth and non-transparent review processes are another cause of staff turnover.   

Having a regular transparent salary review will help you provide your employees with fair compensation according to their strengths, skills, position, and plans. This, in turn, will help you retain, engage, and motivate employees. Reviews also provide you with an understanding of industry standards regarding the appropriate salaries in your industry, necessary improvements, and development opportunities in your company.

A well-organized salary review process ensures that you and your employees have one more open channel of communication.

How can HR Leaders Add Extra-Value to Salary Review?


In order to establish a comprehensive salary review process, a business leader should keep in mind some specific steps and be sure to follow them:

  1. Define your objectives and goals. This will help you state clear expectations for your employees.

  2. Analyze salaries regularly. This is important to identify disparities within your companies. It is also crucial to analyze what your competitors are offering.

  3. Create a salary review method that will align with your organization’s mission, values, and objectives.

  4. Create a template for following up on your salary reviews. This will also help you when receiving a salary review letter from an employee.

  5. Try to involve an employee at each step in the process, encourage them to provide you with feedback. In this way, you will get insights into how your employees feel and will be able to manage your expectations of them.

  6. Build a clear and consistent process and try not to change it at random. In case of any necessary changes, inform your employees beforehand.

  7. Sync performance data (KPIs/Performance Indexes) to the salary review system and improve the flow so that managers can make unbiased decisions. 

  8. Consider pension & bonuses as part of employee compensation.

  9. Add to the salary review flow a 1:1 talk between the decision-maker and the employee to explain their final compensation and keep the process transparent. 

How Can HR Leaders Implement an Effective Salary and Bonus Review?


In order to form a systematic salary review process, it is important to implement special software that already contains the necessary methodologies. Modern software products for performance management offer more than the classic set of functions for the administration of a staffing table and payroll. Now they allow you to set process control parameters in your system and perform actions according to the distribution of roles.


Here at Heartpace, we have created a robust system designed to solve problems HR departments have to contend with on a daily basis.


Here’s a brief outline of the critical workflows that you can manage with Heartpace:


  • Performance management. This includes performance check-ins, scheduling, conducting performance appraisals, and 360 feedback collection. Heartpace’s performance management allows for the replacement of long reports, email threads, and spreadsheets with an easy-to-use digital experience.

  • Objectives and OKR management. You can set overall company objectives and align them with the OKRs of teams and individuals. Each employee sees how individual goals correlate with the progress of the entire company.

  • Engagement research and insights. Examine engagement with monthly or quarterly surveys and learn critical hacks for your team's engagement. Manage the process, topics, and questions to get actionable insights from your surveys.

  • SMART Salary review and pay gap management. We bring together performance, salary, pension, benefits, and all the extra data you need to make smooth and fair salary decisions that stay on budget.

    You can calculate company-wide budgeting with every tax addition and consider a proper format for bonus distribution: split into salary or pension contributions. Managers can allocate bonuses and receive approvals in just a few clicks.

    Because the salary data of each employee is connected to our system, you can easily see and analyze salary gaps within teams, departments, and specific positions. This includes pension, insurance, compensations, and other benefits. Heartpace avoids the hassle and security risks associated with Excel and emails. Instead, collect all the data you need in one single protected system. Enable flexible permissions and involve the right people in different salary review steps. Facilitate the collaboration process between the CEO, CFO, other management teams, and the union. That is SMART.


Read our blog if you want to know How to Connect Work Performance to Salary Review and Increase Employee Retention. Combine these strategies with the right software to get the best results and earn your team's trust and loyalty.  


The Heartpace team is here to help you achieve genuinely remarkable results when managing HR workflows. Heartpace’s philosophy is about trust and commitment, and together with transparency, creating an environment that drives engagement and profitability. 

Team Heartpace

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