Win/win pay reviews

Regular remuneration reviews are a key tool for retaining top talent by ensuring that salaries and benefits remain competitive. Sometimes it can be challenging to negotiate this process and keep payroll costs within budget while maintaining staff morale. On the one hand, you don’t want to lose good staff because you’re not paying enough, while on the other hand, if people have unrealistic expectations, you may not be able to meet them.

There are steps that you can take to make this process a win/win for both parties, as outlined below:

Step 1 - Schedule a regular pay review process

An annual salary review process provides a structured opportunity to discuss remuneration and allows employers to maintain consistency in pay across the organisation. It’s also easier to manage a budget when all staff are reviewed at the same time, rather than on an ad-hoc basis.

Step 2 - Research market rates

Market data is essential to make informed decisions about remuneration and there are a number of ways to gather information, including:

• salary surveys
• job ads
• industry associations
• remuneration specialists

It’s important to compare apples with apples, so take into account both base salary ranges and typical compensation packages for your industry and/or the role. Other benefits may include things like additional Kiwisaver contributions, company vehicle, insurances and bonuses. Benchmarking staff remuneration to market rates means that all parties can be confident that employees are being paid fairly for their work.

Step 3 - Set a budget

This step may require input from a company accountant to determine what the business can afford, taking into account current profitability and projected income while balancing any budget constraints against the need to attract and retain top talent.

Step 4 - Link pay to performance

In addition to making sure that people are paid a fair market rate, pay reviews provide an opportunity to drive high performance by rewarding your team based on their contribution. Assessments made during a performance review process can be used to determine the level of pay rise within the market range, as per the example below:

It’s helpful to separate the process of giving people feedback on their performance from a conversation about pay reviews. In a performance review meeting, you want the focus to be on achieving goals, training and development and career progression, rather than on remuneration.

Step 5 - Communicate

Communication is possibly the most important step in maintaining staff morale during a pay review process. This is the employer’s opportunity to get buy in and manage expectations by sharing market data, discussing factors impacting the company’s budget for pay rises, and explaining the link between the person’s performance and their pay rise.

Step 6 - Consider non-financial benefits

Although the focus of this article is on remuneration reviews, non-financial benefits also play a role in a strong employer value proposition (EVP) to attract and retain top talent. According to the Hay Salary Survey for 2024, the key benefits that matter to employees are hybrid working arrangements (for desk-based employees), training and development, career progression and health and wellbeing programmes. The survey shows that only 26 percent of employees are satisfied with their current benefits.

Benefits programmes are most successful when they closely align with the specific needs of the organisation and its employees.

In summary

Although salary reviews can be challenging for employers, a regular, structured process with evidence based decision-making and transparent communication helps to create a sense of fairness and satisfaction with the outcomes.