“There's no way I can justify my salary level, but I'm learning to live with it.” Drew Carey.
Probably not! is the harsh truth in many organisations to the question raised above on whether the annual salary review process is a worthwhile employer investment. Practices for performing annual salary reviews and salary increases differ by company and industry. My primary focus in this blog is on employers who typically decide each year whether to give employees a salary rise or not. For the sake of this blog, I am excluding public sector employers and private sector employers covered by collective bargaining agreements because salary increases in these cases are typically uniformly applied.
So, what exactly is the employer investment in the annual salary review process? The employer investment is substantial and exceeds the cost of the salary increases. To conduct the annual salary review process effectively, employers must evaluate the market competitiveness of their employees' salaries, fund any salary increases, pay social insurance contributions, and ensure that salary adjustments are handled in a fair and consistent manner by managers. This necessitates a significant investment in both manager training, manager calibration of proposed salary increases and employee communication. This time and effort comes with an opportunity cost because the salary review process takes away time that could be utilised to focus on other organisational and business priorities.
So, how can employers make sure the annual salary review process is a worthwhile investment? I have listed some pointers below for consideration.
“A lack of transparency results in distrust and a deep sense of insecurity” - Dali Lama
There has been a lot of noise recently about pay transparency. The adoption of the EU Pay Transparency Directive by the European Council in April 2023 caused a bit of a stir. The practice of openly sharing information about compensation (salary, bonus etc.) with employees and job candidates appears to be seen as a quite radical concept in some quarters!
Here are 5 things worth knowing about pay transparency.
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