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Surviving your annual pay review

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Posted by Sarah Lardner on 18 April 2017

Surviving your annual pay review

HR Reward | Reward Consultancy | Pay & Reward | Measuring pay | Analytics | Communications | HR software | HR Technology | Pay Review | Performance | Reward

Many of our clients are bang in the middle of their annual pay review process, although we all do it every year, it always feels more painful than it should be.  This week we thought we’d share Sarah Lardner’s advice on ‘surviving your annual pay review’ – we hope it helps!

First, reflect on last year. In my experience, reflecting is simpler if you break down the process and challenge each element:

1. Building a credible business case

Did you build a picture of the external economic environment, gaining insight into the rate of inflation, cost of living and GDP?

Was research carried out to understand pay movement and typical pay awards within your sector or location?

Doing this provides credible and relevant information for pay pot approval, but crucially it helps with building key messages for employee and line management communication.

2. Influencing the % Pay Pot needed

Did you carry out effective financial analysis, modelling different options and scenarios before deciding on your pay review principles, demonstrating commercial understanding?

Did you calculate any market adjustments or pay differentials for particular employee groups and did this require further investment?

Being clear on your reward stance and pay progression ideals, means you can ensure that any financial analysis is accurate and focused on the desired objectives.

3. The approval process

Did you have time to prepare your business case with the right level of information to engage the stakeholders?

Were you clear on your implementation timescales and how they align with approval meetings, such as RemComs?

Understanding and anticipating the information key stakeholders need to make a decision and being able to quickly rework figures, means the business case will be credible and you will gain immediate agreement.

4. Communications – never too soon to start

Did you start the communication programme early, pulling together a plan and identifying key messages?

Did you anticipate questions, focusing on the types of challenges you might face with the pay review?

Did you achieve a high-level of accuracy on the pay review letters and did they go out on time?

This activity stream is absolutely critical and takes time to put in place. Having a clear plan and drafting the communications early, such as pay review letters, Q&As and line management instructions/expectations, ensures that communication is accurate and timely and will support successful implementation.

5. What analytics did you capture?

Did you capture meaningful and relevant analytics to help guide your decisions and reinforce your business case? Some good areas to track are:

The Leaky Bucket: How much money is spent through the year, between pay reviews on ad-hoc, out of cycle increases.

Flight Risks: Running a comparison between identified high performers (through their performance review scores) and position against the relevant market can identify those at risk.

Past Glories: A comparison can identify those who are paid highly against the market, but current performance doesn’t justify this pay position.

Pay Control: Compare pay against the market by hire date. Are long-servers generally paid more by the impact of just having been around a long time? Are new hires consistently paid at a higher relative start rate than their peers?

Pay Governance: How are pay decisions managed across the business and how do they vary between departments, line managers.

10% ers: How many employees have had a pay rise of more than 10% in a year? Does this tie in with the Talent Mapping programme?

Variable Pay: Comparisons of bonus payments against performance, long-service and gender.

Capturing this information not only helps hugely with decisions around pay review allocation, it also increases your credibility and professionalism. No bad thing.

6. Delivering the Annual Pay Review

Did you make it clear what decision your managers needed to make and by when? Did you make the process easy for them by providing guidelines?

Did you make the process easy for you (HR) in terms of collecting data, aligning pay awards, managing the approval process and uploading data for the payroll run?

In my experience, the whole project often becomes condensed into this phase and becomes stressful. HR finds itself having to ‘make do and mend’ to get to the payroll cut off. With a slick internal process, having the tools to hand and clear and firm guidelines for managers, this process is smoother.

7. Post-implementation – always room for improvement

Did you have any issues or problems that you didn’t expect?

Did you plan a wash up meeting with your HR team to ensure continuous improvements?

While the Annual Pay Review process will never be without challenges and problems, it is important that these are minimised, reducing the impact on HR and employees. As with any large activity or project, a review is an extremely important and beneficial process.

I hope you've found this blog useful and have taken away plenty of ideas to make your next pay review a smoother and less painful experience. Happy Pay Review!

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