Salary reviews play an instrumental role in bolstering employee motivation. By ensuring fair compensation for their work, they support higher job satisfaction and incentivize strong performance. They also make employees feel valued and appreciated, which has a positive effect on productivity and engagement.
In this article, we’ll delve into how to conduct a salary review effectively, covering both how to prepare and follow up. Let’s begin by taking a closer look at what a salary review entails and why it’s so important.
Table of Contents
- What Is a Salary Review?
- Why Salary Reviews Are Important
- Preparing for a Salary Review
- Conducting a Salary Review Meeting: Dos and Don’ts
- After the Salary Review: What to Do Next?
- Common Questions About Salary Reviews
What Is a Salary Review?
During this process, a company evaluates whether an employee’s salary fairly compensates them for their work. Typically, HR works with the employee’s manager to compare compensation with performance. Then, the manager sits down with the employee for a formal meeting to discuss pay.
Organizations should establish a formal salary review policy that ensures all employees receive the same type of review at the same intervals. Create a clear schedule for when you’ll conduct these reviews, for the sake of consistency and fairness.
Why Salary Reviews Are Important
Salary assessments play a crucial role in fostering a healthy workplace culture. Let’s examine how they do this in more detail.
Ensuring Fair and Equitable Compensation
Salary reviews help companies keep pace with industry standards and inflation. The value of a given job can change based on shifting expectations, such as the need to deepen technical skill sets. The review process considers how all of these factors should affect compensation.
Further, salary reviews ensure you compensate new hires and existing employees at the same levels. If you’re bolstering incoming employees’ salaries due to changing market conditions, you can then adjust current employees’ salaries to match, to avoid hurt feelings.
Promoting equity has important effects on employee motivation and retention, as we’ll discuss next.
Motivating Employees
Examination of salaries plays a key role in performance management by incentivizing good work. Regular salary reviews help employees feel fairly compensated and recognized for their efforts. This boosts morale, fueling consistently high engagement and productivity.
Moreover, pay transparency powers higher performance. According to the Society for Human Resource Management (SHRM), perception of fair pay holds even more importance than higher pay.
Improving Retention
In turn, strong motivation and satisfaction increase employee retention. If talented employees aren’t receiving the compensation they deserve in-house, they’ll look elsewhere for it. So, conducting salary reviews plays a key role in attracting and retaining your talented employees.
For receptionist and bank teller positions, a 6% increase in salary brought a 16% increase in retention over the next year, a recent study found. This increased retention reduces the cost of turnover.
Preparing for a Salary Review
Let’s examine how employers can prepare for the salary review process. Then, we’ll look at how employees can contribute as well.
For Employers
Follow these steps to provide a fair and balanced assessment of each employee’s compensation level. HR should take the lead on carrying out these steps, but managers can play key roles as well.
Conduct Market Research
Engage in salary benchmarking, determining the average rate for a given role in your geographic location. This helps companies set appropriate target salaries, researchers report in Harvard Business Review. Outline salary ranges for each position, defining the criteria for lower, medium, and higher salary.
Use tools like Robert Half’s salary calculator (there’s one for Canada and another for the U.S.) to collect data on industry pay rates. In the U.S., the Bureau of Labor Statistics’ Occupational Outlook Handbook also provides useful salary info. Make sure you’re using up-to-date tools that factor in the cost of inflation and regional trends.
Review how each role has evolved since your last salary review, too. Then, you can more accurately assess the salary range.
Create Clear Guidelines
To avoid bias, design a clear set of performance standards to justify raises, bonuses, and promotions. HR should create this centralized set of criteria, working with managers to outline relevant standards.
Evaluate Performance Metrics
Use objective data like KPIs or OKRs to determine whether the employee has earned a merit increase. Look at productivity, achievements, and tenure when making this decision. Consider data such as the percentage of targets met and the quality of the employee’s work. Using performance management software can help you track and analyze this data over the review period. Then, provide written justification for any decision made.
Look at Demographic Data
Compare data on the salary ranges of employees across race and gender. If you notice any discrepancies, work to mitigate them.
Assess Your Budget
Align salary adjustments with the company’s financial status and budget. Make sure you’re able to continue offering any salary increases you wish to make. Alternatively, give lump-sum bonuses to employees who have earned them.
For Employees
Encourage employees to prepare for their own salary reviews with these tips.
Self-Assessment
To conduct a self-evaluation, reflect on your accomplishments and contributions throughout the review period. Also detail any new responsibilities you’ve assumed or abilities you’ve developed. (For example, have you become a more effective collaborator?) These factors all increase the value you bring.
Research Market Value
Look at salary benchmarks for similar roles in your industry. Consider whether your salary matches the market value for your position. If your company publishes salary data transparently, look at the salary of peers in similar roles as well.
Gather Evidence
Document your achievements and data to show how you’ve added value within your role. List 3–5 of your biggest wins, stating specific KPIs met. Also list training you’ve undergone or credentials you’ve earned. You could also draw from recent 360 survey results to highlight how your interpersonal abilities have grown.
Set Realistic Expectations
Consider the company’s financial position and average industry raise rates. Reflect on when you received your last raise, too. These factors will help you align your expectations with what is feasible for your employer.
Conducting a Salary Review Meeting: Dos and Don’ts
Keep these tips in mind as you hold salary review conversations with employees.
In a salary conversation, DO …
- Hold the conversation after the performance evaluation. Covering salary during a performance appraisal shifts the focus away from personal development.
- Be clear and candid, sticking to a key list of points you’ve prepared in advance.
- Show appreciation for their work and contributions.
- Be transparent about budget restrictions. They’ll feel more satisfied when they know you’re rewarding them at the highest rate that is feasible.
- Listen to their perspective. They might raise valid points that should be addressed.
- Provide a recap of the decision you’ve made at the end of the meeting.
- Set a follow-up meeting to discuss performance goals that will help them advance.
But DON’T …
- Make snap decisions. If the employee has raised good points about their contributions, say you will review the matter with HR.
- Overpromise, saying things like, “If you do X, then you’ll receive a raise.” Various factors like economic conditions will affect future raises, and making promises that you can’t keep could result in legal issues as well as frustration.
- Sugarcoat the truth. Embellishing upon the employee’s contributions, but not offering a commensurate raise, could be perceived as failing to reward strong performance.
Then, take the appropriate next steps to follow up from the discussion.
After the Salary Review: What to Do Next?
Take these steps immediately following the salary review:
- Put your decision in writing, if you haven’t done so already. Document the outcome of the conversation, recording key points discussed. If the employee added important info, make a note of it so you can follow up later.
- Communicate the outcome of the discussion with HR, providing this documentation.
- Set up a discussion with the employee to plan performance goals.
- Help the employee design personal development goals as well.
- Monitor your employee’s progress, noting KPIs and other milestones achieved.
- Discuss their development in weekly one-on-ones, setting new goals as needed.
If employees feel dissatisfied with your salary decision, listen to their feelings. Provide clarification on what led to your choice. Then discuss next steps, including how you’ll support their development. Answer any questions, and let them know when the next salary review opportunity will arise.
Common Questions About Salary Reviews
Here, we share our answers to frequently asked questions on this topic.
What percentage of increase is common in a salary review?
A 3–5% pay raise is typical in most companies. In 2024, the average salary increase was 4%.
How often should salary reviews be conducted?
Companies should hold salary assessments at least once per year. Holding them every six months is ideal, if feasible. That will ensure you’re updating salaries in line with employee growth and contributions.
Should salary reviews be held along with performance reviews?
The salary review conversation should follow from the performance appraisal. Tackling both subjects in a single meeting would take the focus away from developmental goals.
How should I ask for a raise during a salary review?
Prepare a clear, concrete list of your accomplishments, emphasizing how they have benefited the company. The more clearly you can articulate these points, the better the chance that you’ll receive a raise.
Salary review conversations are a vital part of the performance management process. With careful preparation, you’ll ensure they boost employee satisfaction, motivation, and productivity. Once you’ve begun conducting salary benchmarking, creating performance criteria, and adopting methods of tracking performance, the process will grow easier. Thoughtful execution of these key steps, followed by candid conversations and good follow-up, will foster optimism and fulfillment throughout your workforce.
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