Most companies have an annual compensation review process where the salaries and other payments to employees are compared to internal and external benchmarks and adjustments are proposed, approved and implemented.
Many HR departments of larger companies have access to an online tool for salary reviews, but many smaller companies prefer to use spreadsheets like the one I am sharing with you today.
The basic principles for using this tool:
- You need to make sure to retain employees and avoid employee turnover by reviewing his or her salary on a regular basis. Typically once per year.
- Employees need feedback regarding job performance expectations and also their own performance delivered against the expectations. The compensation they receive should reflect not only the market value of the work they do for you, but also their own level of delivery against expectations for that role. Performance which exceeded your expectations deserves to be rewarded. You could do it as a discretionary bonus or you could review the person’s annual salary and consider an increase.
- Some employees bring increase requests to their bosses on a regular basis while others may just be waiting for their bosses to realize how much effort they put in and how many good results they are achieving. Without a solid salary review process which is run uniformly on an annual basis (at least) you could run the risk of not treating all of your employees in the same fair manner when it comes to salary reviews. It could happen that only those employees requesting regular increases are receiving them while those who do not ask, do not.
The template shows all of the current employees charged to your department budget plus what they are earning now, what their last performance review overall score was, and some basic employment history in terms of experience years and last promotions. Annual increase budgets should be based on local market data. The template I am sharing shows who should be completing each segment of the worksheet. For example, HR would be completing all the light yellow blocks before it reaches the manager for decision-making. Some parts of the sheet will calculate automatically if you use MSExel to open the file.
This template assumes that you will use all of your budget and you will distribute it among your employees depending on the factors that you have decided to take into account i.e. performance review scores, years of experience, specific role (if there is a scarcity and steep inflation in salaries for that role in the marketplace around you) etc. The sheet keeps track of your overall budget so you can see if you have overspent or under-spent overall.
Performing a fair overall salary review is not easy to do since many factors will present themselves as you go through this sheet as a manager. You will wonder if person A would leave if you don’t give them the increase which he or she requested or demanded some weeks before. You will wonder if you can give another person a zero increase since he or she already earns so much more than the others. You will be worried that a lot of angry employees will want to talk to you after these increases are communicated.
Do talk to the most senior HR person in your region/location for support in helping you make sure you have made the best choices for each of the employees concerned.
Note: This template is a simple tool and could help you start up an annual salary review process, but beware that the topic and the best approach to use is a hot and touchy subject for most and it would take a lot more than just this template to ensure you have a solid and fair salary review process in place.
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