Tips for approaching Salary Reviews

Nicole Holmes, Director, Alita Sales 

As an employer, do you dread annual salary review time?  It is not my time of the year, but I don’t approach it with as much dread as I used to. In this article I will share some tips and tools that have made the process more manageable for Alita Sales.

1) Avoiding salary reviews is not a good strategy

We recently made a key hire of a person I never thought we would be able to lure away from where she was. What changed her mind? She had not had a pay review in 3 years. I cannot stress enough the value of having a yearly performance and salary review process.  It sets clear expectations to the staff of when their performance and pay will be reviewed, it makes budgeting easier and stops ad-hoc wage blow outs to appease disgruntled workers. Most of all it stops you potentially losing your best staff.

2) Staff Performance Reviews should always be linked to Salary Discussions

Salary reviews should always be linked to performance reviews. By doing this you make it clear that renumeration is liked to performance on the job and to market forces, not the employee’s cost of living pressures.

At Alita Sales when new staff start, we show them our performance review documents (that are linked to their Job Descriptions) and explain the expected level of performance and what salary % increase each band of performance is linked to. We make it clear that there is room for good pay increases linked to exceptional performance, but similarly below average performance will be linked to little, or no salary increase.

Your Performance Review documents do not need to be long or complicated. It could be as simple as some questions such as:

• What worked well this year?
• What didn’t go so well?
• What skills/goals/projects would you like to work on in the upcoming year?

The challenge is to ensure staff understand that salary is the return for work performed, not to assist in their cost-of-living pressures. The more value that they provide to the organisation, the more likely they are to receive an increase. Salaries generally don’t increase just because “their mortgage has gone up”.

3) Use Industry Salary Guides to Benchmark Salaries

Industry Salary guides provide insights into typical salary ranges for specific roles in various sectors. Most large recruitment firms such as Hays, publish comprehensive market salary guides by state for most industry sectors. Compare your salary and compensation packages with the guide to ensure that you are paying where you want to be in the market. These salary guides can provide a sanity check on what the rest of the market are typically paying for similar roles.

4) Final Benchmark – Job Advertisements for similar roles in your area

The final piece of data that we use to prepare the salary budget is to research each job in the company and compare them to similar roles being advertised on employment websites. Staff will often do this research themselves and present you with a case for how they have found other employment opportunities are paying higher salaries. It is important to be aware of what the going rate for roles is in the City vs Suburban or rural areas. Rates of pay can vary significantly between areas and without research you can easily be put on the spot to agree to something that is not commensurate with what your local area is paying for the role.

5) Don’t undervalue the total compensation package

Most SME’s cannot afford to match the salaries of their larger competitors. That does not stop you from being competitive. What is it that your company offers as part of the overall compensation package? Make sure you present to your employee as part of the salary review discussion. Always present the Salary Review as a total package including Superannuation as well and any bonuses, commissions or benefits you might offer.

6) Present the whole package with the Industry Analysis

We present our compensation package to staff with market salary /industry analysis table and discuss the reasoning for our decision.  We demonstrate that we have researched the market for each state and also the local market for their particular job. This demonstrates to staff that appropriate consideration has gone into the review process. Often times staff may not like the result, particularly in these times of high inflation, but they understand the thought process that we have undertaken to land at that result.

7) What happens if they are still not happy after all this?

 
No matter how good your preparation as an employer you need to accept that there will always be one or two staff members who “were expecting more”.  This is the hard part where you need to consider:

1. Under what circumstances would you be prepared to pay more for the job they are doing now?
2. Would the employee take on more roles or responsibilities for a higher pay rate?
3. Is there something more important than the actual money that you can give in return? Increased flexibility for instance?

The key to finding the best solution is to talk with your employees. Yes, it is uncomfortable. Employers don’t like to be “hit up for money” and feel under pressure. Equally staff generally don’t like “having to ask for money”. Acknowledge that it is awkward, but you have to work together to find a solution that is acceptable to both of you and that requires talking through the situation. It might be awkward but in my experience your staff will respect you for having the difficult conversation rather than avoiding it.