Pay Reviews: A Complete Guide for HR and Managers

A pay review is a formal assessment of an employee’s work performance used to determine whether they have merited a pay increase. Typically, a pay review may also factor in an employee’s tenure, changes in the market for talent or incoming budgetary concerns. 

Conducting effective pay reviews is important for employees because:

• It Motivates: Employees who know that a rise may be around the corner may invest more time and effort into their role.

• It Helps Employees Reach Goals: Knowing there are benchmarks to hit – and hitting those benchmarks – can be quite fulfilling for employees.

• It Improves Retention Rates: Employees that know they have room to grow, both in title and in salary, are more likely to stay with your organisation.

• It Encourages Fairness: If all employees are eligible for a pay rise based on performance, this levels the playing field.

Pay reviews are typically conducted annually, but some managers will perform one after the completion of a large project. They may also be performed if someone receives a promotion. 

Several factors are considered during the review, including market data, available budget and personal and professional goals. There’s no legal obligation to hold a pay review, but many companies do so as an added perk of their reward programme. 

A salary or pay review is often conducted in three phases. These include: 

• The Planning Phase

• The Review Phase

• The Information Phase

Let’s take a deeper look at them to gain a better understanding of the pay review process…

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The starting point for a smooth pay review process is good preparation. These are the steps to follow:

Figure out what the pay review is meant to accomplish. Share the objectives of the meeting with everyone involved in the process. This helps manage expectations while guiding employees and other stakeholders on how to prepare for an upcoming pay review.

Conduct an audit of employment contracts to determine if certain clauses could impact the process if ignored. For example, are they entitled to a certain pay rise per year? Is their pay frozen due to a probationary period? Confirming any restrictions or obligations before the pay review process helps avoid a breach of their agreement and serious legal penalties.

Next, evaluate the job descriptions for each employee’s position and determine if they properly fulfill the expectations for that role. Each description should clearly represent the level of responsibility, the tasks they’ll perform and the anticipated level of job performance. This helps create a benchmark for your employee’s achievements. 

After examining a job description, go to an external job site and find if the employee’s current salary falls within industry standards. An internal audit of employees’ salaries can uncover serious wage discrepancies between people with similar roles, which the pay review can help correct.

Define the budget you’re working with during the salary review by measuring against your established goal for the meeting. Whether offering pay increases to keep up with inflation or to reward overachieving employees, knowing your budget and the schedule for appraisal helps ensure every salary is increased fairly. 

Once all your planning is finished, leadership within your organisation can begin to conduct performance reviews. During the process, they evaluate how well employee performance aligns with their expectations. This framework is then used to guide the pay reviews.

It’s important for your managers or HR representatives to accurately measure an employee’s performance to avoid unfairness or accusations of discrimination. Below is an overview of how to rate your worker’s accomplishments during the pay review process.

Employees should be kept informed about what the pay review process will entail as the planning stage evolves. They should know exactly what to expect from the pay review process, including which aspects of their position will be reviewed. Springing a performance review on your staff makes it feel more like a penalty, especially if there are extenuating circumstances for a drop in performance.  

Issue survey and self-evaluation forms before the pay reviews take place to gain greater insight into your staff. How they view their responsibilities and performance can help you identify weaknesses in their job description and find solutions for them to increase productivity. Additionally, surveys can also work as an announcement that a review is underway and give employees time to raise concerns in advance. 

An Employee Performance Rating Scale splits the responsibilities of a position into several categories you can use to rate employees in those areas. Establishing a standardised scoring system makes it easier to indicate when an employee’s performance falls above or below expectations in one or more areas. 

The last step of the typical pay review process is to communicate results and feedback to your staff. Employers generally send out salary review letters containing the review’s outcome, any ensuing changes to the employee’s pay and the exact reason why their pay is being increased. This helps ensure that the process is seen as transparent, fair and objective. 

A pay review assesses an employee’s performance vs expectations to determine if their salary should increase. 

The length of a salary review can vary from employee to employee, depending on the complexity of the position and how well they’ve been performing. 

Pay reviews are typically conducted annually. In some organisations, pay reviews may be conducted more frequently, timed to the completion of a big project. They may also be held upon a promotion or job title change.

Organisations are not required to perform a pay review. However, many organisations do so because it’s a part of the company’s rewards programme. Even if it’s not required, it’s still important to review the employee contract to ensure all requirements in regard to salary are met.

The pay review process involves analysing several factors. A performance review is involved to ensure the employee met and exceeded expectations for the position. A market review is also conducted to ensure the employee’s salary is in line with what other companies offer. The organisation’s budget is also taken into consideration.

The planning phase of the pay review process involves:

• Determining Objectives. What are you hoping to get from the review? A fairer salary across your workforce? Increased productivity from clear job expectations?

• Checking Contracts. Is there a clause in an employment contract that dictates how their pay should be handled?

• Review Job Descriptions. Is the role’s description clear enough that employees understand what’s expected of them?

• Researching Standard Market Pay. Are your employee’s salaries in line with similar positions in the job market?

• Defining the Budget. Is your budget flexible enough to make the pay increases you promised to your employees?

The performance review phase of the salary review process involves:

• The use of surveys, which determines your employees’ views of their job and find issues that negatively impact their productivity

• A priority placed on transparency, so employees know what’s being reviewed

• Sharing results with employees to keep the process objective and fair

• Implementing a rating system that simplifies the analysis of an employee’s performance

The pay review process can be time-consuming given  the amount of performance data you have to gather on your employees. Personio helps make this easier with its performance tool that easily tracks how your staff handles their tasks while providing holistic feedback on your schedule. 

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