What Is a Salary Review? Definition, Benefits and Guide

By Indeed Editorial Team

Published 22 November 2021

Most businesses understand how vital salary reviews are to the overall profitability of the company. These reviews ensure that the salaries of team members encourage them to be more productive. It's important for you to conduct regular salary reviews to assess how well your salary offer is in comparison to industry standards. In this article, we answer what is a salary review?, discuss its importance and provide directions on how to conduct one.

Related: What Is an Annual Salary? (Plus How to Calculate It)

What is a salary review?

It's not unusual for you to wonder "What is a salary review?". A salary review is an evaluation that employers conduct to assess whether a professional's salary accurately matches their performance, position and contribution to the company. Unlike a performance review, which focuses on the professional's achievements, these reviews focus on their compensation. Most employers usually conduct salary reviews annually to ensure that their payment strategy accurately reflects the professionals' productivity.

A good salary review considers the value of the team member's position in the job market and the extra responsibilities of the team member if any. It also considers the team member's achievements and potential for growth. Regular salary reviews are integral to managing your department, planning your budget and improving the productivity of your team members.

Related: What Is an Employee Evaluation Form?

Importance of a salary review

There are several benefits of conducting a salary review. These include:

Helps in making plans

If you have made several structural changes to your team during the financial year that require you to review the salary structure, a salary review can benefit you. A salary review helps you modify your budget to accommodate these changes. These reviews also help you understand and improve team compensation strategies. It enables you to know what team members to promote, demote and retain and make plans accordingly.

Your salary review enables you to structure your budget and plan for upcoming years. These salary reviews also help you assess the efficiency of your company's training and development program, and allow you to make necessary plans to improve them.

Provides information on retaining and recruiting talent

Conducting a salary review allows you to gain information on the productivity of your team members. It helps you select the team members you can retain and promote. It also allows you to know whether to expand or minimise the job description of your team members. Carrying out a salary review is an excellent way to check the improvement of those on probation and set their compensation accordingly.

Ensures that you comply with legal provisions

It's essential that the salaries of your team members comply with the legal provisions that guide employment. Conducting a salary review allows you to ensure that your compensation standard matches the guidelines in the law. This ensures that the company operates within the operation of the law.

Improves the productivity of professionals

A salary review is an excellent way to encourage productivity in the workplace. The salary review allows you to identify, reward and promote high-performing colleagues. Doing this encourages them to be productive and motivates them to contribute to the company's growth. These reviews may also be beneficial for team members that may not be productive. The salary increase or promotions awarded to high-performing members can encourage them to improve. Either way, these reviews serve as a form of feedback for professionals.

Encourages effective communication

During a salary review, it's common for employers or human resources managers to have individual meetings with each professional. This affords employers and employees alike the chance to understand each other, provide feedback on the management and productivity of the company and effectively communicate. The salary review serves as an opportunity for employers to entertain questions or concerns that colleagues have. It also allows employers to encourage team members and provide them with feedback on their performance during the year. This can improve their productivity and encourage them to keep working with the company.

Ensures that the salary offer is competitive

To attract the best talent and resources that the job market offers, it's advisable that the pay is competitive compared to other salary options available in that industry. Conducting regular salary reviews allows you to compare your salary offer with other offers in your industry and make necessary adjustments. HR managers within the company can conduct research, study industry trends and adapt their findings into the salary review to ensure that the company remains competitive.

Encourages cost-efficiency and fairness

Carrying out regular salary reviews helps the company adopt cost-effective practices. These reviews allow employers to check if they're over-paying some professionals and make necessary cuts. This also means that the company identifies productive professionals and ensures that they're adequately compensated. These reviews ensure that the company retains productive professionals that contribute to the company's growth. After all, one of the main reasons why professionals leave any company is better salary offers from other companies. Conducting a salary review is an excellent opportunity for the company to assess its salary offer and improve it as the situation requires.

Provides reliable data

A company that conducts regular reviews can build a database that contains updated information about current industry trends concerning employment and salary offers. This ensures that the company can extend fair and competitive prices to potential hires during recruitment. At the same time, it also prevents the company from offering bloated salary offers, as its information about appropriate salary requirements for various roles is accurate and reliable. Having a dependable bank of information also helps you maintain a good retention strategy that ensures that your quality professionals remain in the company.

How to conduct a salary review

Here are steps on how you can conduct a salary review:

1. Check the contract terms

Before conducting a salary review, one of the first things to do is to check the contract terms of your team. Review their employment agreement to confirm if your team members are entitled to any pay increase or pay freeze. Reviewing the contract terms also lets you know if they have completed a probation period. It also lets you know if they have defaulted on the employment agreement. Before you conduct a salary review, it's advisable to check each professional's contract to be informed of agreements that can impact the salary review process.

Related: Contract Employment: Definition, Benefits, Disadvantages and an Example Contract

2. Consider your budget

It's essential that your review aligns with the budget and planned financial expenditure of the company. While reviewing the salary of professionals, keep in mind what the company's budget can afford. Consider the company's financial state, the company's policies and its financial projections for the next financial quarter. Consider all these parameters when conducting the salary review.

3. Consider the objectives of the salary review

Before conducting a salary review, it's crucial that you determine what you hope to achieve from it. Determine if you want the review to focus on rewarding professionals according to their performance to improve productivity. Focus on ensuring that the salary of team members is more competitive. Deciding this early enough helps you determine the strategy to use during your review.

4. Discuss with the HR department

Depending on the size of the company, it might not be possible for you to have a one-on-one relationship with all your team members. You can discuss your salary review strategy with the HR department to determine if you can suitably apply it to your team members. The HR department is more familiar with team members' performance, has personal relationships with them and can properly evaluate the best salary review strategies for them.

Related: What Does a HR Manager Do? (With Skills and Salary)

5. Confirm job descriptions

To develop individual targets that you can use to determine the salary reviews of your team members, it's essential that you understand their job descriptions. Review the job description of each professional to know how well they're performing in their role. Doing this also helps you understand the achievements and progress team members have made in their roles. This allows you to know if they have been making positive contributions that go beyond their job description. When you review their job descriptions, you can accurately assess their productivity.

6. Study market data

It's crucial that you study relevant market data before conducting a professional salary review. This allows you to modify your salary offers to align with the market trends in your industry. Study the value of various positions in the job market to ensure that your salary rates match industry standards. Make sure that the market data you analyse are from reputable and verifiable sources to ensure its accuracy.

7. Develop a rating method for your team

You can collaborate with the HR department to develop a comprehensive method of rating team members. You can review your existing team member rating system, if you have one, and update it if necessary. It's also essential that you inform team members of the areas that the rating system assesses to enable them to know what to expect. You can also regularly update this system as you improve the company's standards.

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