As Benjamin Franklin once said, “by failing to prepare, you are preparing to fail”, and this quote can most definitely be applied when discussing your organisations pay review process.
Being the elephant in the room, it can be tough to get to grips with how to tackle the task that lies ahead, and whilst many HR professionals may already have an idea of the overall salary increase expected, a structured process is still required.
There is always a risk that your pay review might not achieve what you want, resulting in employee dissatisfaction and potentially a higher rate of employee turnover, but by collecting and analysing data, as well as communicating to employees appropriately, you can survive the pay review process.
There cannot be enough emphasis put on the importance of data during a pay review.
It is essential that you spend quality time collecting data and understanding if there is any specific action required with certain employees.
Are there any patterns emerging within the current state of the business that need to be addressed, for example taking a look at voluntary turnover levels, salary grade and job function.
Are you loosing employees in a certain location, and are there other employees who you may consider as ‘at risk’?
Alternatively, you should also discuss with your recruitment team or senior leaders to establish any areas within the business that have difficulty recruiting.
Is the package attractive enough to the talent available to fulfil such roles?
The business should be aiming to attract, motivate and retain employees, therefor it is business critical to establish if there are any specific issues that are deterring these goals, and deciding the action that needs to be taken.
Once you have successfully analysed the current status of the business internally, you can address any issues and then begin to research externally to see if you competitors are offering better packages than what your organisation is currently offering.
Salaries in some areas are dramatically competitive as the fight for talent between companies can be strong due to the lack of skilled workers available.
For example, London have paid more in salary compared to the rest of the UK for a number of years.
Therefore, tracking any regional variances can be essential to understand the industry and what salary candidates expect.
It’s well documented that the UK workforce has a shortage of graduate engineers, and as a result there has been a slow but consistent increase in base salary.
When it comes to discussing the overall pay reward of those within the company it’s imperative to not just look at what the market is doing, but consider the other contributing factors simultaneously.
You may think it’s easy and straightforward to award increases based on the market itself, but if the business cannot sustain the cost increase it can pose a major risk to the performance of the organisation as a whole.
When reviewing the affordability of any increases from a company viewpoint, there are numerous questions that you should bear in mind;
Will it increase the National Insurance Contribution cost?
Will any increases be pensionable?
Will it mean other benefits will be restricted?
Time is of the essence
Rushing a pay review can lead to catastrophic consequences not only for the business bottom-line, but also for employee satisfaction.
There is a fine line as to when is best to begin the pay review process.
Run your pay review too early and it could mean some of your data may be inaccurate or out of date, too late and it may mean you don’t have the time to collect the relevant data.
Creating a timeline will ensure that you have time to meet with the senior leadership team and analyse the required data.
Even for some of the leaders in your organisation, this may be the first pay review they have had to manage, so ensuring they are on board with the process and can give specifics about the available budget for employees is essential.
It is important that leaders are just as knowledgeable about the process and aware of what is expected before award decisions are made and employees communicated with.
At the end of the day, the annual pay review process is not just as simple as a slight pay increase across the board.
It is about ensuring the salary has clear, defined structures which can ensure your employees have the building blocks for growth, as well as making the salaries relevant to the roles within the market.
Once you have done the ground work required, rewarding the increases to employees is the easy part.
By Matthew Ferro, Reward Consultant at Paydata