The end of the financial year is often the time of year many businesses start to look at salary reviews. Often this is an ad hoc affair with a central budget being the main criteria for what individuals are given.
If the budget is 5%, and there are no other reasons to change, it is more than likely most individuals will get a 5% increase. However, this is the wrong way to go about reviewing salaries.
If the same increase is given to all employees this can send a message you probably don't want: it doesn't matter what you do here, you will all get the same pay rise.
People usually want a few things from their salary:
- They want it to be a fair salary for the type of job they do;
- They want increases to be in line with the effort they put in;
- They want it to be fair relative to others within the organisation and the marketplace; and
- They want to think there is a fair and consistent way of determining it.
All of this can be achieved without being the highest payer. While most people would like more money, the reality is they will accept their pay happily if it fits the above criteria.
How do we achieve this?
The first step is to determine the actual jobs people do - a results-based, succinct job description will do this.
Next, you need a system of comparing these jobs to each other and evaluating their value to the business. This will determine the internal relativities. Many jobs will appear to be of similar value so you will tend to end up with clusters of jobs which you can say have similar value.
Taking these jobs and assessing what the market is paying is the next step. Being broadly in line with the market is the key objective here. You don't have to be the best payer but you should avoid being the worst. Mid way is usually OK.
This is not an exact science so having a range around the mid point of the market is usually the most workable way of determining salary levels.
Now we get to the individual employee level where the performance of the individual will determine where on the range they should be paid. This is important for starting new employees but even more important for reviewing salaries of existing employees. If they are low on the range and perform very well they should have a larger percentage increase than someone further up the range not performing so well.
Consistent application and communication of these principles will ensure that, while they may want more money, employees will at least feel they are being paid fairly. This will remove pay as a "demotivator" and will allow you to work on those issues that will truly engage your employees and have them passionately perform.
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