Arguably the most contentious two processes in the HR world have to be performance feedback (part of Performance Management processes) and salary reviews (part of Reward and Recognition processes). Most employees and managers and of course writers of trendsetting articles around these topics have strong opinions in all directions about what should be happening and how bad a specific approach is. I will refrain from picking sides at this time, but I will instead share a simple template with you for conducting a salary review for those reporting to you and who are most likely then a part of your budget.
Many HR departments of large companies have access to an online tool for salary reviews, but I know there are also many smaller companies who do not have the deep pockets and may have some use for a tool/template like this one.
The basic principles for using this tool are:
- When you hired someone, some years earlier, his or her salary was X, let’s say that represents 30,000 EUR per year. Some years later there may have been inflation meaning the person’s buying power went down and perhaps to hire someone new for the same role the average market price may now be 32,000 EUR per year. You need to make sure to retain the person you hired and avoid having to find someone new for the role by reviewing his or her salary on a regular basis. Typically once per year.
- Your employee has been delivering work for you over the last year and he or she maybe did it better than others in the same role. That 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 on your 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. Hopefully you have budgeted for annual salary increases and you have planned for at least between 2 and 3% in overall annual salary increases. (This could vary by country/region in terms of local labor laws, minimum wage adjustments, inflation, scarcity of resources as applicable to those working for you etc).
Giving everyone a standard increase may seem fair and easy to you, but it comes with some risks. If you reward those who work harder and achieve better results the same way as you do those who do not, you risk demotivating your hard workers and may eventually lose them to your competition. Those who are not working very hard or very smart are not motivated to change anything either since they know they will get their standard increase no matter what they do. So don’t go for the “one size fits all” approach.
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 underspent overall.
The difference between the types of increases are simple – merit increase relates to the performance of the person while equity increase relates to the person being basically too far below what that job pays at this given moment in time. This could be either because you hired the person in at a too low a salary or you have neglected to review his or her salary for too long and the current market pays much more for someone with the same sets of skills and abilities as the person in your group.
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 (by private letter from HR or discussion with you).
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. A best practice that can also help with fairness is to have a round-table review with other managers at the same level as yourself to ensure all of you are using the same principles for determining salary reviews. I strongly recommend that you include the most senior HR person supporting these managers in the round-table review to help with guidance and support when there are opposing views or concerns.
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 process in place.