Deciding how to go about reviewing your salaries depends on what is important to you right now.  Timing of course is everything, ensuring you can attract and retain staff is important, but you need to determine how best to approach it.  Most organisations have a preferred approach and it will usually be documented in your salary policy/guidelines (if you have them), or in any agreement with trades unions etc.  Factors to consider include:

Affordability:  What budget have you got?  You will need to ensure your finance team have been involved in setting the budget, and HR are involved/aware of budget pressures that will apply.  I put this one first for a reason - it does not really matter what else you look at, if you haven't got the budget you will need to be clear about what is and what is not affordable. 

Cost of Living:  Cost of living increases are usually about ensuring that pay keeps up with cost of living and staff are no worse off as a result of increases in CPI (CPIH).  Earnings growth is another factor that is frequently taken into account.  It goes without saying that this is often the over-riding argument from staff representatives who are looking to ensure that pay keeps pace with the cost of living at least.

Earnings Growth:  The ONS publish earnings growth figures regularly so that you can see how much pay is increasing in the overall economy.  You can also get settlement and forecast increases data from the ONS and other sources.  Knowing how much salaries in general have grown by, what settlements have been made in your sector and what your competitors are forecasting is absolutely a must if you want to make a robust decision about your pay award.

Market rates: This is where you test the market to see what rates are like in your sector(s)/industry.  It is important if you are to remain competitive with other employers in your sector, that you know what is happening with market rates.  This is used by almost half of organisations to support decision making.  You can benchmark specific jobs, all your jobs or your sector in general.   

Some organisations prefer to undertake a fundamental review of the market every two or three years. This can be beneficial at times of low growth as it is easy to plan for the next few years, and staff turnover is unlikely to be high. However, it is less popular when earnings growth or COL is high. The cumulative increases can be significant, and even at 2% each year a three-year review could cause salaries to fall behind market by more than 6%, which in turn can affect retention.

We have found that many of our clients prefer to adopt a hybrid approach and fundamentally review base pay using an in-depth market review at least every two years, whilst allowing for an interim, average annual increase related to CPI or average earnings and, usually, applied across the board. This allows them to keep up with the market without having to undertake a fundamental review. We have found that many of our clients prefer to fundamentally review base pay using an in-depth market review at least every two years, whilst allowing for an interim, average annual increase related to CPI or average earnings and, usually, applied across the board. This allows them to keep up with the market without having to undertake a fundamental review.

Collective Bargaining:  Some of you will be entering into discussions with employee representatives about your pay review.  Remember to ensure you get all your information on the above factors so that you can have those conversations with confidence. 

Whatever your approach, communication is key.  That's what my next blog will be about.  Follow my posts for more information about pay reviews that will help you make good decisions.