Time for a pay review
Everyone looks forward and expects a pay rise throughout the year. That simple increase to an employee’s salary is the result of a delicate process called a pay review.
Let’s start with the review period. Some organisations use the financial year or calendar year to plan and budget for pay review. Other employers use the employees’ employment anniversary to review the individuals’ performance and relative pay increase. Whichever is the case, the company needs to determine the basis on which the pay review is to be carried out. Reward professionals may also be engaged to create and drive the delivery of the pay review, in liaison with the management team.
A pay review typically results in an increase to an employee’s salary package. The review is generally based on the following three factors:
- The business’ performance
- The employee’s performance
- Market rates.
A company may decide to award the same percentage pay increase to all employees across the board, irrespective of the individual’s performance. It may also opt to give a pay rise to a particular team or department for its outstanding contribution or, due to an exceptional performance during that particular year. The modus operandi varies from company to company.
Pay increases need to be budgeted beforehand, within the context of the market the business is operating in. The first thing the employer will do is to carry out the necessary workings to identify what increases can be given and the cost to the business. This process needs to be carried out irrespective of whether the pay increase is large or small.
Therefore, the next step in carrying out a pay review is to agree on how much the business can afford and how much will actually be spent on the increases (i.e. the budget). This exercise should be carried out with the firm’s finance team together with the rest of the management team.
This process is followed by agreeing what the scope of the review is and a decision on the timetable ahead.
Another crucial aspect is to look at both internal and external salary data to determine what the going market rates for every post within the company is. In certain instances, businesses commission a salary survey. This useful tool provides a specific pay analysis, comparison of every position and grade (and the respective pay) within the company, benchmarked against competing organisations.
If pay increments are tied to a performance management system, then the line managers are to organise appraisal meetings with every staff member to evaluate if projected targets have been attained. This process also involves discussing one’s development goals for the upcoming year.
Once these reviews are approved, all employees are to be informed, in writing, of their respective pay increase. HR is responsible to update its systems (such as the payroll system) and the employees’ personal records.
As with every project, the pay review process entails the continuous monitoring and any room for improvements should be taken into consideration for next pay review.
While the pay review process is very important for every business, its potential to complement the business performance can only be achieved if it is linked with the overall business and HR goals. It also needs to be aligned with any other HR processes such as the performance management system and other reward systems that are in place.
About the author
Maria Bartolo Zahra is Managing Director and HR Advisor at SurgeAdvisory. She has over fifteen years of human resources and business advisory experience.