What is a Salary Review?

‘Salary review’ refers to the process of evaluating and potentially adjusting employee salaries within an organisation. It involves a systematic assessment of individual employee performance, market conditions, and internal compensation structures to determine whether salary adjustments are warranted. The primary purpose of a salary review is to ensure that employee salaries remain fair, competitive, and aligned with organizational goals and market realities.

Here are some key aspects of a salary review:

Performance evaluation: A salary review typically involves assessing employee performance to determine if any salary adjustments are warranted. Performance evaluations may be conducted using various methods such as annual performance appraisals, regular check-ins, or a combination of objective and subjective performance criteria. The evaluation helps identify employees who have achieved exceptional results, met or exceeded performance expectations, or demonstrated significant growth or contributions to the organisation.

Market analysis: In addition to evaluating individual performance, a salary review includes analysing market data and trends to understand the current compensation landscape for specific job roles or positions. This analysis involves comparing salary levels in the organisation against external market data, industry benchmarks, or competitive pay practices. The market analysis helps ensure that the organisation’s salaries are competitive and aligned with market rates to attract and retain top talent.

Internal equity: Salary reviews also consider internal equity, which involves evaluating the fairness and consistency of salary levels within the organisation. This includes comparing salaries across different departments, job roles, or employee levels to identify any potential pay disparities or inequities. Ensuring internal equity helps maintain employee morale, motivation, and a sense of fairness within the organisation.

Compensation strategy and budgeting: Salary reviews take into account the organisation’s compensation strategy and budgetary constraints. The organisation’s overall compensation philosophy, goals, and budget allocation for salary adjustments influence the decisions made during the review process. The organisation must consider factors such as financial performance, budget limitations, strategic priorities, and the need to balance employee expectations with the overall sustainability of the compensation program.

Salary adjustments: Based on the evaluation of individual performance, market analysis, and internal equity considerations, salary adjustments may be recommended or implemented. These adjustments can include merit-based increases, cost-of-living adjustments, promotions, bonuses, or other forms of compensation changes. The extent of the adjustments may vary depending on factors such as performance ratings, market competitiveness, and budget availability.

Communication and transparency: Transparent communication is essential during the salary review process. Employees should be informed about the review process, criteria for salary adjustments, and the organisation’s compensation philosophy. It is important to ensure that employees understand the rationale behind any salary adjustments made and feel that the process is fair and objective.

A salary review process is typically conducted on a regular basis, such as annually, although organisations may choose different review cycles based on their needs and resources. It is a critical part of talent management and rewards strategy, as it recognizes and rewards employee contributions, supports employee engagement and retention, and helps maintain a competitive compensation program in line with organisational goals and market dynamics.