Setting And Reviewing Salary Levels
Neil Bromage has run his own small business and is a freelance business writer working on a range of newspapers including The Times, Sunday Times, Telegraph and Financial Mail on Sunday. This book is based on a wide range of columns and Q&As written and answered by Neil for Business Link over a number of years. He is based near Preston, Lancs.
When making an offer of employment you should generally be paying for experience and skills rather than untested potential, while making sure that your salary levels are not substantially lower than your competitors, otherwise you risk losing key staff to them.
To get a feel for the going rate for a particular job in your industry, you should monitor advertisements in national and local newspapers, sector-specific journals, and online recruitment websites. This will give you an idea of what your competitors are offering. Alternatively, the Average Earnings Index (AEI), published by the Office of National Statistics is a useful source of information.
Many businesses have pay grades based on the level of skill, experience and management responsibility of the employee. Even if you don’t use formal pay grades, it is still a good idea to have a written policy on salary levels so that employees can see that the criteria are consistent and non-discriminatory.
When to review salaries
Most employment contracts cause employers to review salary levels at a specified time of the year or after a certain length of service but you may also consider reviewing salaries, for example, when promoting an employee.
Conducting salary reviews
The first step is to establish how much money your business has in its budget to allocate to salary increases. Take into account turnover projections, market fluctuations and recruitment requirements.
The rate of inflation is widely used in salary bargaining but should only be used as a guide. Also consider whether you will use the same percentage increase across the board, or if increases will differ in accordance with the various grades or job functions, and decide if new recruits will be reviewed in the same way as their longer-serving colleagues.
Many employees associate salary reviews with performance reviews. Although pay is inextricably linked to performance, it is better practice to keep salary reviews separate from the appraisal process. It is also good practice to evaluate an employee’s salary separately from any benefits they receive.