It’s a tough time for HR professionals looking to stick rigidly to their guns about keeping pay increases to a minimum. Rising living costs, not to mention talent scarcity, is forcing the hand of employers as their top talent becomes increasingly restless about the status quo.
While pay is often downplayed as a reason for people leaving an organisation, it’s rarely outside the top 3 reasons for departure. Indeed, back in February we suggested that, in most cases, pay rises are on the cards.
As the end of financial year approaches, it’s time to prepare for the onslaught of pay reviews.
Instead of traditional, incremental increases, employers have for some time seen the value of merit- or performance-based pay. However, using a system that links reward to performance has its own unique set of challenges. Consider those who don’t receive the review they had hoped for: they can become disengaged and despondent. Similarly, those who have performed above and beyond expectations may feel they haven’t been rewarded adequately – hastening their plans to leave.
How can you ensure your remuneration review process is effective and fair?
Start with 5 key questions, relating to:
- Overall business performance. Can the business afford it?
- Legislative requirements. Are increases on the cards due to minimum wage laws, Awards or Enterprise Agreements?
- External market expectations. How does the employee’s current salary align with the market? Is it significantly above or below?
- Internal talent pool expectations. How does their salary align with their peers within your organisation?
- Individual performance. How has their performance stacked up this year compared to last year? Has that translated into broader team or organisational performance?
Even if the answers to these questions do not favour the employee, it’s essential to create an open, transparent dialogue with them.
Here’s what else your organisation can do to prepare.
Empower managers to objectively assess performance
This is critical if the pay review process is linked to performance appraisals. Managers may need tips on how to be consistent and objective, with decisions based on clear benchmarks or KPIs. Going with “gut feel” when it comes to reviewing someone’s pay is not a good look. A benchmarking meeting involving all managers prior to the appraisals can be a good way to ensure everyone is on the same page. Consistency will also ensure common pitfalls are avoided. These might include awarding increases on a case-by-case basis without considering the implications for others who might be on par with or more deserving than the pay rise recipient.
Set expectations – and constantly reinforce them
What does “high”, “fair” or “poor” performance actually mean in your organisation? Have the expectations been outlined clearly and examples provided? Make sure these expectations have been established from the outset and have been constantly reinforced with regular performance catchups so that when review time roles around, employees don’t automatically expect a pay rise. These expectations can also be reinforced through objectives, KPIs or project outcomes. This allows everyone to focus on what matters most, so they can add the most value to the organisation.
Transparency pays – most of the time
Nobody likes to be the “bad guy” but sometimes it’s just not possible to grant a pay rise, even if one is deserved. Whether a request is granted or declined, it’s critical that employees understand the reasons for the decision. This is even more important when pay it linked to performance. If someone has underperformed, keeping employees informed “in the moment” (instead of weeks or months later) with regular one-on-one manager-employee catch-ups can avoid nasty surprises down the track.
When it comes to transparency, while point 3 above (external market rates) will always warrant an open conversation, point 4 (internal talent pool expectations) may require more discretion. We’ve previously outlined the pros and cons of pay transparency – it’ll be up to your line managers to use their common sense about how much to reveal about the pay of fellow team members.
Break the mould
The world of work is undergoing significant change and how people undertake work has also shifted. A single, structured review each year may no longer be the best approach for your organisation – especially if people are working on a project-by-project basis. Flexibility can be critical. If staff do request a pay review outside your normal cycle, consider:
- What are the repercussions of granting a pay increase now, rather than the scheduled time? For example, is there a flight risk if a review doesn’t occur in a timely manner? While this is rarely the ideal time to grant an increase, it’s important to consider if there are other ways to keep the employee engaged.
- Roles are constantly evolving – does the employee have a case for being benchmarked against a different position in the market?
- Has their performance exceeded your expectations?
A robust and transparent process for your pay reviews can make a big difference to employee morale and retention – and critically it can reinforce that hard-to-build, easy-to-destroy virtue: trust.
Best of luck this EOFY!
ELMO Performance Management can help to streamline your performance processes by encouraging continuous feedback and providing tools to align individual and team goals with organisational strategies. Users can also offer a range of pre-built goals and development objectives, and utilise 360 reviews, to help build a high-performance culture.
Additionally, Pivot, an ELMO company, has been helping to take the pain out of salary review processes for over 16 years. Whether your organisation has straight-forward or complex remuneration requirements, Remuneration provides visibility over the entire process and helps managers identify bottlenecks while providing clarity around remuneration decisions. Find out how we can help your organisation – contact us today.