How to Conduct Effective Salary Reviews
Can you believe that we have just passed through another End of Financial Year? Looks like we have approached the time of year that many business owners and CEOs dread – It’s salary review time!
We have been having more and more discussions around this topic as people become nervous around the salary review and remuneration process. From our experience these nerves are caused primarily by a lack of structure and information when it comes to making these decisions.
“How much of an increase do I need to give so that my top people don’t leave?”
“Do I have to give everyone CPI? What happens if I don’t?”
“What are the expectations of the team?”
“What is the market doing?”
But with all of these questions comes a level of anxiety for both business owners and staff alike who are wishfully hoping that they will receive an increase that they perceive to be fair and just.
So to help put your mind at ease, and hopefully take one less issue off your plate, here are our 6 tips for removing the pain from the salary review process:
Tip 1: Understand Market Trends & Benchmark Your Teams Salary’s
Did you know that not all salaries increase at the same rate? Did you also know that jobs with the same title but in different industries or locations may not be paid the same salary? Ensure that you have access to reliable data on current market and salary trends as a starting point for making decisions. Go through the market data and map out (or benchmark) the guides for each role within your business.
Tip 2: Create Salary Bands
Using market data as a guideline it is important to draw a line in the sand and determine the salary range (or salary band) for each of the roles within your business. This will enable you to communicate clearly to staff what they can expect to be paid for any given role within the business, and assist when recruiting new employees into the business too.
Tip 3: Understand Where Individuals sit in Your Salary Bands
Map out within the previously mentioned salary ranges (or salary bands) where your employees sit with their current remuneration. This is critical to understand if you want to avoid overpaying people (especially your top performers) and creating a strategy for moving up people who are paid below the midpoint on your salary bands.
Tip 4: Keep Your Fixed Costs to a Minimum
So often we see businesses giving too much of a base salary increase when they could have put part of the increase into a well-designed incentive scheme linked to the achievement of specific performance objectives. This approach will ensure that you are getting a return on investment from your people costs.
Tip 5: Establish a Framework for Making Salary Decisions
Consider creating a table that balances how the individual has performed, with their position on your salary bands with what you can afford to pay. This will create a strong basis for making fair and informed salary decisions.
Tip 6: Communicate Upfront
This is the most critical (yet most commonly overlooked) aspect of a successful salary review process. Once you have a framework for making decisions, communicate this throughout your business. If your people know what they need to do to receive a salary increase you can manage their perceptions regarding fairness; which will have a huge impact on their satisfaction and performance. It will also make the discussions around salary reviews at this time every year a lot easier!
Bonus Tip: Catch Up Regular with Your Employees to Discuss Performance
Here is a bonus tip for those playing along at home! Make sure you are having regular discussions or catch-ups with your employees around their performance, not just at the end of the year. By ensuring your employees not only have an understanding of their performance and development opportunities throughout the year, they will not feel blindsided or surprised by any feedback provided around this time of year that coincides with their salary review.
Overall, by pre-planning your salary review process you have the opportunity to ensure that your salary review process is received positively by your teams. It also gives you an accurate reflection of your current remuneration levels, and allow you to make informed and effective future decisions around remuneration.
If you would like to discuss your individual salary review process, how you can have effective salary discussions or even just chat through your concerns in this area, give us a call on 1300 559 585. Let us show you how sorting out your salary benchmarking and review processes may also help reduce your employee costs!