6 tips to create a successful salary review
A salary review, or a pay review, is a process that most companies conduct once or twice a year to evaluate and adjust salaries based on their employees’ performance.
It is one of the most important processes in the annual HR cycle and a great opportunity for a company to even out pay disparities, reward employees, or adjust wages to become more competitive. But even though most companies conduct salary reviews regularly, it's not always plain sailing. Managers and executives have to make difficult decisions that can have a big impact on employees' job satisfaction and motivation. And for employees, the salary dialogue is usually the most anticipated conversation they have with their manager all year. Organizations and their employees are also greatly affected by macroeconomic trends and escalating inflation, which brings even more challenges to the table.
Certainly, it's not the easiest task to run a salary review that is feasible for HR, easy for managers to carry out, and appreciated by employees. I’ve listed six key ingredients that I hope can help you and your team in your next review.
1. Start planning well in advance
Even if you have done reviews before, there are probably things you can improve or ever-changing circumstances you need to consider. Use what you have learned from previous rounds and involve leaders and other stakeholders early. Coordinate with the leadership team or the board (remuneration committee) to get an approval of total spending and budget. Planning well ahead allows you to start communicating in a timely manner. Send managers the process overview and deadlines as soon as possible so they can be well prepared.
2. Empower and equip the leaders
Make sure managers are trained to take responsibility for their decisions. Give them tools or tips for their salary conversations. Managers should focus primarily on solid facts and the parameters that impacted their decision, rather than voicing limitations or blaming the process. Remind them to stay attentive to employees and allow them to share their thoughts.
3. Address inflation concerns
Since 2022 has been an exceptional year, with inflation levels we have not seen in decades, it's important to address this topic. Looking nationally, salary increases will not meet the level of inflation which means that real earnings for the vast majority of employees will be lower compared to last year. It’s important to keep in mind that companies are also affected by inflation and can’t unquestionably raise salaries to match inflation.
Inflation and salary raises are driven by different inputs even if they generally move in the same direction. When inflation is low, only 1% for example, companies often raise salaries well above that. But during high-inflation years, this reality is working against employees in terms of real wages (something many might have forgotten about or never experienced given that inflation has been low for a very long time). Ensure to not leave inflation out of the wider company conversation, as many employees may have questions about it. Communicate openly to address the topic proactively.
4. Be transparent
Communicating with the employees is just as important as giving instructions and guidelines to leaders. Explain how the budget was set and what has impacted the numbers. Try to be as transparent as possible to not leave employees guessing. You don’t need to go into detail with all the numbers, but you can explain how different components such as inflation, changes in the market, and development have influenced the budget. This will also help prepare managers and employees for their dialogue.
5. Use an HRIS with a built-in salary review feature
Using an HR tool with functionality for salary reviews can be of great help. It will save you time from solving manual tasks, such as copying and pasting data, monitoring sheets, and replying to an endless amount of emails. Doing your salary review in excel is time-consuming and usually prone to human error.
In your HRIS, you already have all the details you need for the salary review and managers will feel more confident using a system they are familiar with. When the HR platform can do some of your administrative work, you can spend more time helping managers, making sure the review gets done in time and with high quality.
6. Unite salary reviews with performance management
Plan and design your salary review in accordance with your performance management process. One of the most essential things to look at during a salary review is how employees have performed. To make it easier for managers to assess their employees, make sure your performance reviews and goal management is quantified in a way that can be used in your salary review later. Also align the timeline, vocabulary, and guidelines to ensure a smooth and logical linkage between the two.
If you want more guidance or strategic support for your next salary review, reach out to The Talent Company to learn more about our offerings.
Isak Petrén, People Management at The Talent Company
Salary Reviews in AlexisHR 🚀
Getting salary reviews to run smoothly from beginning to end can feel challenging. But don’t stress, there are many ways to unravel these challenges. And at AlexisHR, we’re proud to offer an all-in-on HR platform with Salary Reviews integrated. The feature is designed to help you and your team to save time, simplify and ultimately stay competitive as an employer.
Book a free demo if you would like to know more about Salary Reviews and AlexisHR.