How to Determine Salary Increases - Paying & Rewarding Employees

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I met with my ex-colleague this weekend and she was bit low. After 2 years working her bum off in the same organization, her recent request for a pay rise had been dropped. Her manager had said that she didn’t ‘contribute anything new or add value’ to the position.

As you can visualize, after years of working overtime, missing lunches and continuously going the extra mile to get her work done to the maximum possible standard, she found his reasons just a little bit annoying. Was her boss right to reject her pay rise? Shouldn’t hard work be rewarded? What if you just don’t have the time to “contribute something new” to the position?

While there are undoubtedly many reasons that drive workforces, it’s an undeniable truth that most employees work for a pay check, irrespective of what really affects their commitment level most.

Henceforth, compensation is a serious element in any association, and there’s simply no room for errors. Using right compensation management strategy and plan can help to reduce your risk of mistakes, make more well-versed decisions linking pay to performance, and help you develop a pay plan that’s both unbiased and competitive.

Why pay raise is important?

Employees receive a salary or wage for carrying out the job responsibilities. The definite salary amount paid is reliant on many reasons such as: market rates, experiences of the employee, their knowledge, their ability and skill set, and their prospective for improvement. A salary upsurge is usually provided to an employee for many reasons:

  • To identify improved competence or skills.
  • To compensate the team member for taking on additional accountabilities.
  • To recognize strong performance.
  • To support pay with market rates.
  • To afford for a cost of living adjustment.

While there’s no prerequisite, legal or otherwise, for an employer to offer salary raises, it is certainly a common anticipation among employees that salary upsurges will be provided on a periodic basis.

Factors for determining salary raises

While job performance is a main factor in any pay raise choice, but it is important to give importance to other aspects as well:

  • The employer’s complete financial condition.
  • The section’s or department’s “budget” for increment.
  • Length of service of employee with organization.
  • The employee’s certificates (i.e., the shortage of some talents in the market and the probability that the employee will be paid more for them in some other organization).
  • How much other companies in the local area are paying for related jobs. Employers occasionally look to salary surveys of similar establishments within their market area for salary benchmarking or altering salary rates. Most companies use “pay budget” surveys rather than compensation surveys when relating their annual increments to those of other employers.
  • What the employee needs in the way of motivations.
  • Overall economic circumstances–the inflation rate, changes in the cost of living, etc. Growths in the cost of living should be a main concern when determining on a budget for pay raises.

Key steps and recommendations for pay raise

Knowing how to govern salary increases will guarantee that the process is fair and unfailing. Consider the below mentioned steps:

Know value and promote quickly

One thing that is very important to consider while pay raise is that there should constantly be a lookout for workforces who go above and beyond the regular call of duty. It doesn’t at all times need to come in the form of a salary raise, but viewing top performers that you identify as a value giver is not a yearly checkbox — it’s somewhat that should happen each single day.

Decide on the timing and occurrence of salary raises

It is at the employer’s decision when and how often salary raise will be given. Govern what would be the suitable timing & occurrence for your business.

Review market comparable

On a consistent basis, you should be revising the salaries of your employees by relating them against roles at competitor companies with comparable characteristics and in depth salary benchmarking. You can get access to this kind of data by co-ordination with salary consultants or subscribing to different compensation databases. Once you have right to use this data, you can use it to make judgments as part of a daily compensation review.

Other considerations which are important for the salary raise:

  • Business’s annual goals or metrics – Define whether any particular company KRA and targets need to be achieved first before pay raise will be provided. If so, tell this to employees in advance so they know about all factors that can affect their possible salary upsurge.

Internal impartiality – Guarantee that there is professed equity in the salary rises being provided to workforces in the establishment who perform alike role, own a related skill set, and have a similar level of performance.

Copyright @ PayReview 2018. Evoque Advisory Private Limited is a company registered in India operating under brand name PayReview.