Top 5 Tips for Reviewing Employees’ Pay

So another year has ticked over, and many credit cards are maxed out after the Christmas excess. The start of the calendar year and the start of the financial year are traditionally the times that employees expect a pay review (and in their minds that usually means pay rise).

Here are five top tips for reviewing your employees’ pay:

#1 Do your research. The key areas that you will want to look at are the current cost of living (CPI); pay trends in your state and industry; and the overall performance of your company.

You can find out the CPI for Australia and your state from the Australian Bureau of Statistics Website.

You can download salary information – for example Hays has a free app that you can download from iTunes. You can also do your own research through reviewing job adverts in SEEK and trade journals, and you can also ask others in your industry.

Understanding the performance of your company will be based on profit and loss reports, together with your performance against budgets and forecasts.

#2 Set a time for pay reviews and stick to it. That way everyone knows where they stand. Unless there are really exceptional circumstances, you should avoid increasing pay at other times of the year, otherwise your pay structure quickly gets out of kilter. Be honest with your employees – if the company cannot afford a pay increase this year, or can afford CPI only, it’s better to let everyone know and use it as an opportunity to explain what the company’s targets are.

#3 Consider base pay versus one off bonuses. For example if one of your employees has had a tremendous year and successfully completed some key projects – it may be more appropriate to give them a bonus with a smaller cost of living increase. Otherwise in following years you will be increasing pay based on an inflated base.

#4 Look at the whole picture. It is a good idea to create a spread sheet showing all employees in rank order based on their pay. Does this look fair and equitable? Should some employees be paid more as they have taken on additional duties, or become fully proficient in their role? Are all employees paid at least the minimum under the relevant Modern Award (being aware that some employees may have moved up in their classification due to experience and skills). Are some employees overpaid based on the current market, and should their pay be kept at current levels until the market catches up?

#5 Communicate your decisions. If you are giving a pay rise, it is a great time to sit down with an employee and thank them for their contribution, and explain what you need them to achieve in the coming year. If you have decided not to give a pay rise, it is equally important to explain to your employee, and to agree the conditions under which they can expect their pay to increase (either based on the employee’s or the company’s performance or both).

To sum up, for a successful and conflict free pay review you should:

• Do your research
• Stick to a set time for pay reviews
• Consider bonuses versus base pay
• Look at the whole picture
• Communicate

If you would like any help managing your pay reviews, please talk to us, we would love to help.