Many employers are beginning to see the value of merit- or performance-based pay rises over traditional, incremental increases. However, using a system that ties reward to performance also brings challenges. After all, employees who don't receive the review they're wanting or expecting can become despondent and unproductive, and even those who perform well may feel they’re not rewarded adequately enough.
By setting up a robust and transparent process for your pay reviews, you’ll make a significant difference to both employee morale and retention. So, how do you make sure your pay review process is effective?
Begin your pay review process by asking five questions
An effective pay review should always start by considering:
Even if your answers to these questions aren’t answered in the employee’s favour, you can still manage your pay review in a way that it will build confidence in your process – and in those making the final decisions.
Communicate your expectations early
If you decide to reward people for high performance, ensure everyone understands exactly how you define this. Make sure employees know your expectations early in the year so that, when pay review time comes, they don't automatically expect a pay rise.
Your expectations should also be reflected in formal measures such as objectives, KPIs or project outcomes. This will allow you to focus staff energy on the areas most valuable to your business, right from the start.
Train and empower managers
If your pay review process is linked to performance appraisals, it’s critical that the people managing these appraisals are trained to be consistent and objective, and their decisions are based on clear benchmarks. Consider holding a benchmarking meeting with all managers before appraisals begin.
A consistent review process will also help prevent common pitfalls such as awarding salary increases on a case-by-case basis without thinking through the implications for others who may be equally deserving.
Whether an employee’s pay increase is granted or declined, it’s important they understand the reasons for the decision. If there are issues with their performance, explaining these issues saves you having the same conversation in six months’ time.
Declining a pay rise based on ‘internal relativity’ factors will require a degree of confidentiality, but you’ll should always have an open discussion on external salaries to help employees understand their place in the market.
Be flexible when necessary
Remember that offering a single, structured review each year may not be right for your business. Case-by-case reviews or those initiated by employees may be more appropriate, particularly if your work is project based.
If staff do ask for a pay review outside of your standard cycle, consider these factors:
As the EOFY approaches, you could be managing a whole range of pay review requests alongside your existing tasks. Considering some of these options may assist you.
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