Although the annual salary review happens only once a year, the salary review process virtually takes the whole year. Salary reviews should not be left to the last minute, but be carefully planned and resourced.
If possible a detailed Project Plan should be completed with resources, deadlines and timescales allocated, and a project manager appointed.
The main pieces of work to be covered in a salary review are as follows:
- Job descriptions
- Internal ranking /relativity
- Job matching/benchmarking
- Survey analysis
- Budget Recommendations
- Agree budget
- Union negotiation
- Budget allocation
- Salary increases
Apart from some overlap, the work involved in a salary review has to be carried out in the order as listed. Some other pieces of work also have to be completed. They run at the same time as the above and are:
- Union Consultation
- Buy-in from management and employees
- Training of HR Staff
- Training of employees and line managers
Lets look at each of these work packages individually to see what’s involved and why.
Surveys and alternative sources of market data
There are many sources of market data available to companies to match into and receive salary and benefit data from, these can proove very helpful during a salary review. The main sources are as follows:
- Published General surveys
- Published Specialist Surveys
- Job Club surveys
- DIY Surveys and questionnaires
- Journal data
- Job advertisements
- Other market intelligence such as recruitment agencies, head hunters or word of mouth
How do you choose which market data source to use when completing a salary review?
When completing a review, the idea is to get as much and as accurate information as you can at the price you can afford, using the resource and the time you have available. Sounds easy but you have to balance accuracy and cost against resource and time.
The first thing to do before you choose which survey sources you are going to use, when completing your salary review, is decide which jobs you want to match in to surveys.
Do you want a market price for every job in the company?
If so you need a match in one survey or another for every job.
Do you want to get a general feel for where jobs in your company fit with the market?
A sample of jobs from each grade is used to match into surveys. Care must be taken to ensure that these jobs are a representative sample of all jobs in the grade as the results achieved from the survey analysis of these jobs will determine the decisions made with regard to scale movement for the grade.
To get a general feel for the market during a salary review, most companies go down the sample route as it is much less time consuming, requires fewer surveys and less resource and is therefore less expensive. However it will not be as accurate, as you are assuming that the jobs in the grade which have not been matched are under the same market pressures as the jobs which have been matched.
In order to choose survey sources for your salary review you need to answer the following questions:
- Who are your competitors? Which companies are you in direct competition with for all your staff? Do you have different competitors for different groups of staff?
- What market sector are your competitors in (financial, retail, IT)?
- Are you competing for staff within the local area, within Scotland, UK or Europe?
Generally, if the answers to these questions are the same for all your staff then you may well get all the information you require from one or two general surveys. Whereas, if the answers are different for different types of staff then several specialist surveys may be required and your salary review will be much more complicated.
You must then assess how much the surveys you have chosen will cost and how much resource you will need to complete and analyse the surveys, as well as consider which surveys you already subscribe to and which you do not and most importantly which are relevant during your salary review.
Jobs and Benchmarking
In order to carry out an accurate benchmarking exercise it is very important that all jobs have an up-to-date job description, which is a true and accurate reflection of the job being carried out. It is equally important that the jobholder and the line manager have validated the job description.
The job description serves several purposes:
- Enables an accurate assessment of job size.
- Enables an accurate match into surveys and other sources of market information.
- It reflects the activities and levels of competency and skill of a fully developed, experienced individual. Therefore it is used as the reference point for measuring performance in a performance management system.
- It is also advisable to use some sort of system to rank the size of jobs relative to one another, a formalised job evaluation system being the most beneficial.
- Once you have chosen your surveys and your jobs the next stage is to match your jobs into them. Depending on the survey this is done by one of several methods:
- Job titles
- Two or three line description plus hierarchy
- Capsule job description
- Full job description
- Job Evaluation points scores
Job evaluation is commonly used together with capsule job descriptions in Hay and Watson Wyatt surveys.
Which method of matching is best?
In general terms capsule job descriptions enable you to match jobs with reasonable accuracy in a reasonable timescale with reasonable resource. The accuracy is even better if job evaluation scores are used in conjunction with capsule job descriptions. Job titles and two to three line descriptors plus hierarchy methods require significantly more judgement from the individual doing the matching, take less time and are less accurate than the capsule job description method. The full job description method is more accurate than the capsule job description method, but takes significantly more time and resource
What’s involved in the actual matching?
Someone experienced in surveys and familiar with the jobs and their internal relativities should match them into the chosen surveys, checking for consistency using job evaluation point’s scores or survey grades and internal relativities. The other important things to do at this stage are as follows:
- Keep records of matches
- Check matches
- Validate matches
- Provide salary data to survey company
Remember “if you put rubbish in you get rubbish out!”
It is essential that a company allows time and resources for Survey Analysis during a salary review. The amount of time, resource and effort that is put into data analysis is a balancing act i.e. The more accurate the market data needs to be the more time, resource and effort is required. In a large company with hundreds of jobs the amount of time, resource and effort can be considerable.
Before the data can be collated from the surveys you need to know the company’s salary policy i.e. which market rate they want to set the reference point of their salary ranges at.
Surveys are now available in spreadsheet format and software packages as well as the traditional paper versions. These new versions can cut down the time involved in the analysis significantly, and the software package (e.g. Watson Wyatt’s Reward can produce bespoke reports.)
The steps involved in the analysis of salary surveys are as follows:
- Choose data sets required from the salary survey
- Choose figures required from data set
- Repeat for each salary survey
- Age the data
- Calculate a survey relevance weighting for each job match
- Calculate weighted averages
- Collate data in tables and/or graphs
- Calculate salary information for own company
- Comparison of Company Salary Scales with Market Salaries
- Comparison of Company Salaries with Market Salaries
- Calculate Company Salary Information
- Compare Current Company Salary Information with that of Previous Year
- Record Competitors Pay Settlements
- Check all calculations
The recommended budget is based not only on survey information, which constitutes the major element in the decision, but also on inflation trends and forecasts, average earnings and comparator settlements, the influence of the Union, company strategy and values, and the bottom line how much the company can afford.
For any annual salary review, irrespective of the size of the company, it is advisable to prepare a recommendations document to enable the Board/Senior Executive to make their budget decisions. The document also serves as a record of the Annual Salary Review for the HR/Personnel Department, and therefore the process can be consistently followed year after year.
A comprehensive Recommendations Document should include the following sections:
- Economic background and salary trends
- Comparator settlements
- Current salary trends and analysis of own company
- Results and Recommendations
- Appendices of salary data
BUDGET ALLOCATION AND SALARY INCREASES
Budget allocation is determined by the type of salary structure and salary policy in force.
Budget allocation is fairly straight forward if you have an incremental system i.e. flat increases to scales and salaries across the board, but is more difficult to manage if you have a paying for performance system and even more complicated if you have a job family structure in addition to performance pay.
Most companies with performance pay use a “salary planning matrix”. This matrix is readily available as part of most Human Resources Management software systems, but can be developed using Excel or Access spreadsheets.
The matrix is a tool that calculates how much of an increase in salary an employee should get based on their compa-ratio and their performance rating. It can be used therefore to calculate recommended salary increases for each employee in a fair and consistent manner. Managers then have the responsibility of adjusting those recommendations to suit personal circumstances. Some companies allocate a budget to each manager, based on the performance of each individual in that department, and the manager divides up the pot.
It is appropriate for each employee to receive a letter after the salary review informing them of their salary increase and new salary.
Ideally all employees and management should be regularly updated on progress and timescales, especially when the company operates a performance pay system. In this situation there will be deadlines for various work packages that employees are involved in e.g. input of performance ratings, issue of recommended salaries from salary planning matrix, input of salary increases and new salaries to the HR system and issue of letters to all employees.
As previously mentioned if the Union representatives are included throughout the whole salary review process and they feel ownership for it, they are more likely to agree with the recommendations.
Buy-in from management and employees
Similarly, if management and employees are consulted about a salary review, if their opinions are sought, if they validate the accuracy of the job descriptions and the job matching, if they understand the process and if they feel confident that their salary increase/new salary is calculated in a fair and consistent manner (i.e. they have buy-in) then the annual salary review is more likely to be a success.
Training of HR staff
HR staff require to be trained to a high standard in order to carry out this work competently, and in order to give advice to and train employees and line managers.
Training of employees and line managers
For the annual salary review to be a success it is extremely important that all employees are trained in the process, how it works and how their new salary is calculated. Salary is a very emotive topic. If they don’t understand the system they will cease to be motivated.
Line managers have to be trained in more detail as they have a more participative role to play e.g. to award ratings and new salaries.
To assist managers throughout the salary planning process a number of things can be done in addition to training:
- Produce management guidelines on the process
- Communicate key dates and deadlines
- Operate a helpline
- Hold problem clinics
- Be available to provide advice and assistance
Review and evaluation
Once the letters have gone out it is very tempting to sit back and forget the salary review for another year. Now is the time to start planning next year's salary review. A review and some sort of evaluation of how this year's salary review went, what went well and what could be done to improve is invaluable at this stage before everyone forgets.
The information gathered from the evaluation can then be built into the salary review plan for next year.