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What is a salary review and why it matters for your HR team

The salary review process can be tense and uncomfortable on both sides of the table - both for you and your fellow team members. There’s always going to be compromise and give-and-take.

Travis Taborek

Travis Taborek

Expert contributor with a specialization in how to use evolving AI technology to augment HR workflows.

The job market is tough right now, both for job seekers and hiring teams. Many companies are struggling to keep a hold of their best talent.

When pay discrepancies exist they can lead to disengaged employees, weakened trust in leadership, and even push your best and brightest to start looking at the door.

As an HR leader, you can help make salary reviews fair, transparent, and consistent by addressing misunderstandings.

With preparation, data gathering, open communication, and a systematized review process, you can stay ahead of market trends and create a more motivated and engaged team. This guide will show you what a salary review is, how to prepare one, and provide you with a salary review letter template..

What is a salary review?

Salary reviews, sometimes called compensation reviews, are discussions between an organization and its employees to ensure compensation aligns with contributions and market standards.

Salary reviews are usually conducted annually or bi-annually, but that can vary depending on company policy, significant market shifts, and industry norms.

“A structured salary review process benefits your organization by:

  1. Talent Retention: Regular salary reviews help you hold onto your best talent by offering them competitive pay.
  2. Organizational alignment: Reviews help correspond your broader organizational goals with employee performance.
  3. Employee retention: One-on-one conversations about compensation show recognition of employee efforts and gives top performers a reason to stay.

Salary Review vs. Salary Increase

Salary reviews and salary increases are often confused, but they are distinct processes:

  1. Salary review: In a salary review, you assess whether an employee’s compensation is reflective of their performance and market standards. It’s the first step towards a pay raise but doesn’t necessarily result in one.
  2. Salary increase: This is the actual adjustment to an employee’s pay following the salary review.

In other words, a salary review is an evaluation of an employee’s pay, and the salary increase is the outcome of that same evaluation.

How to Conduct a Salary Review Process: A Step-by-Step Guide for HR Leaders

A fair and strategic salary review process can build the foundation for a high-performance culture, improve employee retention, and make your internal pay structures align with your business goals. 

If you’re wondering how to give an employee a thorough salary review, here are the steps you can take to make that happen:

Step 1: Set Clear Objectives

You should have a clear and definable purpose for your salary review. Are you trying to improve employee retention? Reward your hardest-working employees. Ensure pay equity?

Balance salary adjustments with your budget to avoid overpromising.

Step 2: Gather comprehensive data

When you meet with your team members at the salary negotiation table, it helps to do some market salary research and have the numbers on your side.

85% of companies use multiple surveys when gathering compensation market data. You need that information to make your review process consistent and give your best employees their due.

Pull together key performance metrics (KPIs), feedback from managers, and employee feedback surveys. Use salary benchmarking to ensure competitive rates for similar roles, both internally and externally.

That will tell you more about the employee’s individual contributions and give you an objective standard to base the review on.

Look at how salaries align across similar roles, both in the market at large and internally at your organization, and prevent any disparities between teams or departments.

Step 3: Structure the review process

When you have the numbers you need, define a set of criteria and metrics to evaluate all employees during a salary review. They should be tied to business outcomes and qualities like productivity, innovation, or leadership.

Set a regular review schedule and decide on a cadence, like annual or bi-annual, and apply it across the company.

Step 4: Prepare for the review meeting

Review performance assessments, data points, and proposed salary adjustments before the meeting. Compare their current salary across departments and make sure there are no discrepancies or biases between genders, roles, or departments.

Step 5: Conduct the salary review meeting

Personal, one-on-one meetings are the best setting for salary reviews.

When you sit down with the employee to discuss their salary, link their achievements to salary outcomes, their career goals,, and what they should focus on moving forward. Transparency during the process helps build trust and clarity.

Step 6: Communicate salary adjustments

Give clear feedback and the reasoning behind the decision. Explain how their performance is tied to the final salary decision, whether there’s an increase or not. Guide them through the decision-making process when an employee asks for a raise.

If the raise isn’t granted, explain why, and outline the next steps for growth and how they can change the outcome in the next review.

Above all, be honest, be clear, and be open.

Mimi Nguyen, Founder of Cafely, stresses that issues or news about salary outcomes should be communicated with care.

“How much the employee gets or whether it remains constant will depend mostly on how that particular employee contributed or added value,” says Nguyen. “Now, regarding the difficult conversations, I think it important to have specific next steps so that it does not give the impression there is no more room for growth.”

Step 6: Follow-up and documentation

Give a follow-up email at the end summarizing the meeting, along with any adjustments, decisions, and next steps to take, including timelines for future reviews and performance targets. Update any compliance and payroll systems accordingly.

Best practices for conducting salary reviews

New salary review processes are often met with friction and brow-furrowing from both managers and employees.

The misconception among job seekers and employees is that salary increases are tied to their individual performance, but their salary increases are based on a lot of organizational factors that have nothing to do with them.

You can make that process balanced and remove misunderstandings if you follow these best practices.

1. Align Salary Reviews with Organizational Goals

Tie the salary reviews to business outcomes like productivity and growth. Align salary reviews with a broader compensation strategy to ensure consistency and competitiveness.

. Consider how their compensation affects your long-term HR strategies like hiring, employee retention, and company culture.

2. Use objective criteria

The outcomes of your salary review meetings should be based on factors like performance, tenure, and market data for similar roles both externally and within your organization.

3. Stay consistent

Use a standardized process and apply it the same way across all departments and roles. Train your managers on how to conduct salary reviews fairly and consistently.

4. Address employee concerns

Apart from the salary adjustments themselves, provide personalized feedback and make a pathway for growth. Employees should feel free to discuss their salary without fear of retaliation.

Salary review letter template

The final decision that results from the salary review meeting can be hard to communicate, especially if it’s not what the employee was hoping for.

Outlining the decision process in an email can help mitigate friction or hurt feelings. Use this standardized salary letter template as a starting point.

Subject: Salary Review Outcome

Dear [Employee’s Name],

As part of our regular performance and compensation review process, we’ve recently completed your salary review. Below, I’m pleased to share the results of this evaluation.

Summary of Performance:

We have evaluated your performance based on the agreed-upon metrics, which include [specific KPIs, project contributions, or goals].

Market Benchmarking:

We’ve also assessed your current salary against market data using tools like Workable’s Salary Estimator. Based on this analysis, we’ve confirmed your pay remains competitive within the market for your role.

Salary Adjustment:

Based on your performance and the market analysis, your new salary will be [New Salary Amount], effective [Effective Date]. This increase reflects your valuable contributions and consistent performance.

Looking Ahead:

We encourage you to continue excelling in your role, and we’re excited to support your ongoing growth. During our discussion, we’ll outline specific goals for the next review cycle and provide feedback on areas of development to further enhance your career at [Company Name].

If you have any questions about the outcome of this review, please feel free to reach out. We appreciate your continued commitment and look forward to your future contributions.

Best regards,

[HR Manager Name]

[Company Name]

[Contact Information]

Salary reviews matter, for both employees and you

Keep the salary review process fair and based on objective criteria, and it will help your HR initiatives and keep your employees sticking around.

Workable’s AI salary estimator can take the guesswork out of the salary review process and give you real-time data on competitive salary ranges. With that information, you can make informed decisions in your salary reviews and offer fair, competitive pay.

Start a free trial with Workable, and make smarter decisions about your salaries that will make your business stronger.

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