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Ultimate Guide to Salary Review: Definition, Importance & More

4 min read
Salary review

The salary review process is an important aspect of human resources management. Let’s explore how to implement an ideal salary review and improve your company.

It can help you retain quality employees, increase engagement and improve productivity. But it has to be done right.

As an employer, you might be wondering what the difference is between salary and performance reviews.

In this article, we will break down what is involved in each process, and why salary reviews are so important. We will also share some effective strategies to help you get the most from your reviews for the good of your staff and your business as a whole.

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What Is a Salary Review?

A performance review, also known as a performance appraisal, is a meeting held with an employee to discuss their performance and future development within the company.

Performance reviews are used to determine whether goals have been met and to discuss the future potential growth of an employee.

A salary review goes a little deeper and is used to determine whether the pay an employee receives is an accurate reflection of how they perform.

In other words, a performance review focuses on an employee’s achievements and how they execute their tasks and a salary review on whether this performance correlates with what they earn.

A salary review takes into account an employee’s position and the value of the said position in the external job market.

Are they earning the average salary for their industry and location? Is the salary competitive?

It also factors in any agreed compensation or bonus schemes.

A good salary review should also cover the following:

  • A review of roles and responsibilities
  • A performance assessment
  • Goal progression, achievements and expectations
  • A discussion on areas for improvement
  • The creation of new goals and achievements

For an overview of a related topic, check out this video on pay for performance:

The Six Month Salary Review

Most companies choose to hold an annual salary review for employees, but many also conduct regular six-month reviews.

A six-month review offers a valuable preemptive opportunity to discuss an employee’s performance and salary expectations.

The main purpose of a six-month salary review is to clarify job requirements, monitor progress towards goals, and identify any potential areas for improvement.

Is the employee performing as expected? Does their salary reflect their level of productivity and contribution to overall business?

In other words, it is an opportunity for employees to reflect on their performance and make any necessary adjustments so that they are in line to achieve the goals of their annual performance review. It encourages improved future performance and increases overall productivity.

Above all, the six-month review is also an opportunity to evaluate the performance of new employees.

The run-up to this first review is usually referred to as a probationary period. This is a time for both employers and employees to work out if they are a good fit.

When you hire a new employee it is important to be clear about what this first review will entail.

But ask yourself a question.

Will it be a salary review with a potential pay increase upon satisfactory completion of targets? Or will it be a less formal meeting to evaluate their performance so far at the company?

Make sure expectations are clearly communicated during the onboarding process to avoid disappointment.


Why Should HR Leaders Give Importance to Salary Reviews?

Overall, there are many benefits to holding regular salary reviews at your company:

  • It offers your employees the chance to receive compensation that matches their work performance.
  • A salary review provides you with an opportunity to discuss an employee’s strengths and weaknesses in line with the expectations of their role.
  • Reviews can help you retain high-performing employees and engage those that are not performing as expected. They can also improve employee engagement, motivation, productivity and performance.
  • A review can help you assess if the salaries you offer are in line with industry standards. It can also help you evaluate your company’s training and development opportunities and identify areas for improvement.
  • An established salary review process creates dialogue and open channels of communication between you and your employees.
  • Effective salary reviews can help you improve team morale. By rewarding accomplishments, you can also encourage ownership and self-improvement.

How Can HR Leaders Implement an Effective Salary Review?

The following tips and strategies can help you implement an effective salary review process in your company:

  • Be clear on your objectives and set clear top-down goals. This will help you manage expectations.
  • Undertake a regular salary analysis. Start at an internal level to help you identify any pay disparities within your organisation. Follow up with an external analysis to assess what your competitors are offering.
  • Make sure your method for calculating salaries aligns with your company’s mission, values and goals.
  • Define a salary review letter template to follow up your pay reviews. You can also use this template if you receive a salary review letter from an employee requesting an appraisal.
  • Involve your employees at each stage of the process. Distribute employee surveys and encourage employees to offer feedback. This can help you gain valuable insight into your employees and show them that you value and appreciate their work.
  • Be consistent. Establish a salary review cycle for each employee and stick to it. Create an annual salary review policy and implement it in your continuous performance management strategy.
  • Implement the right performance management solution. Factorial’s performance management software can help your employees set goals in line with the objectives of your company. You can also use the software to schedule employee appraisals and collect regular feedback. This will help you understand how each employee is performing and the impact they are having on the success of your business.

How Can Salary Reviews Improve Company Culture?

The final benefit of implementing a robust salary review strategy in your company is the positive impact it has on your corporate culture.

Also, by showing your employees that you value recognition and fair compensation you will increase the sense of job satisfaction and loyalty in your company. This creates increased motivation and performance and can help you build a strong corporate culture that nurtures the development of your employees.

This, in turn, will help you retain talent and stand out as a fair, competitive, and relevant employer in an ever-changing job market.

After all, as a company, you are only as good as your employees.

Check out Factorial’s Performance Management Feature- Sign Up For Free!


Written by Cat Symonds.

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