Salary reviews - What are your staff worth?
Do you know what reviewing staff wages and salaries really means for your business?
Aside from the obvious impacts salary reviews have on budgets and financial forecasting, there are significant implications for employee performance. Research has shown that employees who view their wages and salary to be accurate and equitable are more motivated and as such, organisational and business unit goals are more easily achieved. Employers are also more likely to retain staff who feel they are fairly rewarded and are able to attract potential staff with the best expertise and skills.
Salary reviews that are conducted annually do not give any consideration to how an employee performs in that role throughout the year and how the position evolves, so although you may have just reviewed your staff's pay packet, now is the time to start thinking about the next review period in six months time.
Employees who have bi-annual salary reviews tend to maintain a higher level of motivation and performance throughout the year and many companies are starting to take notice of this, conducting bi-annual reviews to maintain competitiveness and manage exceptional performance.
Salary review system
A formal salary review system typically follows three steps:
Step 1: Firstly, the type of work the employee is doing needs to be considered. This will determine what level the employee is at, and how much they have developed and grown in the role since the last review period.
Step 2: Once the employee's job level is determined, the statutory minimums need to be considered. In some instances this will involve applying the relevant Award. If the employee is not covered by an Award, then the remuneration amount for internal relatives or the incumbent's peers need to be considered. At this stage it is risky to simply rely on Consumer Price Index movements and apply it to the new salary.
Step 3: The final step is to reference the amount you have with the relevant labour market. This does not mean you have to match the highest amount in the market, but instead find out what the industry standard is and how competitive your businesses remuneration structure will be in that market. Factors that will affect your company placement include staff turnover, business performance, skill shortages in the industry, market positioning of competitors and how critical each employee's position is to the employer. Industry trends and movements from comparable organisations need to be examined, in determining how much of a pay increase, if any, you will provide each employee.
Having comparable information about your employees pay also allows organisations to plan for future positions and forecast market rates. This information can be incorporated into budgets and business forecast tools.
An increasing trend among organisations is that employers are now empowering line managers or supervisors to perform salary reviews. Historically, this was the domain of the General Manager or Human Resource Coordinator, who had the expertise and training to perform this. Assistance and support should be provided to salary reviewers who are less skilled and inexperienced in this function, to ensure increases are in line with market forces and budgets.
Understanding market remuneration levels
Chamber of Commerce & Industry Queensland is able to assist with salary and wage information through the Remuneration Benchmarking Report. The concise, one page report is intended to provide employers with current and accurate information about market remuneration levels so that organisations can see where their salary levels fall compared to the rest of the market.
This data can be used prior to a salary review so that real time data can be referred to and it is also useful during recruitment, the preparation of financial records and budgets and during workforce planning, development and forecasting. Data indicates that from 2003 to 2004, the national average annual salary movement for small companies was 4.2 per cent. Source: AIM Research & Surveys 2004.
The customised reports are prepared by one of Chamber of Commerce & Industry Queensland's Human Resource consultants and can be done over the phone. An understanding of the position is required to conduct the analysis and requires more than just a job title. A comparable sample of the employee's position is selected including appropriate labour markets, industries, positions, qualifications and experience.
Alternatively, a report can be provided to outline what the market would expect from an employee earning a particular salary. For example, what would be expected of a Warehouse Foreman earning $48,000 per annum for a company with 75 employees and two shifts? What would their duties and responsibilities be?
Having access to the right information is key to implementing a formal salary review process. By starting to think about your next round of salary reviews now and implementing them on a bi-annual basis, your organisation can be well on its way to gaining a competitive edge in the marketplace and retaining a motivated workforce.
Why are salary reviews important?
- Employees who feel valued are more motivated
- More employee motivation makes achieving organisational goals much easier
- Fair remuneration decreases staff turnover
- Salary reviews ensure you aren't overpaying or underpaying employees
- Organisations that fairly reward employees are more likely to attract the best potential employees
Further information
Your Chamber of Commerce & Industry Queensland Human Resources consultants can advise on these matters. For further information, contact your nearest Chamber of Commerce & Industry Queensland regional office.