How to integrate live market data into your Salary Review process
We often hear that salary is not the main reason why employees join or part ways with their organisations.
But the reality is that salary is the main reason why organisations struggle to attract and retain talent.
Now, with off-the-charts inflation rates, the pressure is coming from everywhere, and organisations have to deal with an explosive mix:
- Margins are thinning
- The overall cost of living is increasing for employees demanding higher pay.
In a historical moment of tension, one solution for companies is to review salaries, either as part of their annual reviews or as a pre-emptive measure to soothe the situation.
As a consequence, a couple of challenges arise:
- How can organisations make the right pay decisions to keep employees happy and prevent them from leaving without paying over the market?
- Should we be rethinking the entire salary review process?
We try to answer the above in this post.
How organisations usually deal with salary reviews
A definition of the salary review process
The salary review process is a formal process used by employers to assess an employee's worth to the company.
This process typically includes a review of the employee's job performance, skills, and experience, as well as a comparison of the employee's salary to those of similar employees within the company or within the industry.
The salary review process may also include a discussion of the employee's future goals and career plans.
How often do organisations review salaries?
Traditionally companies review all of the pay of their organisation once per year.
They usually set a date in the year when they review all of the salaries and then apply a certain increase based on a predefined budget.
There are essentially two ways to approach it:
- Company-wide review
- Individual reviews
A company-wide review
In this scenario, the organisation agrees on a flat increase for everyone, usually in line with the yearly inflation.
So, if an organisation gets a margin of 3% to increase salaries, they simply increase all employees' pay by 3%.
In the past years, inflation has roughly been oscillating between 1% and 3%. Source.
Individual salary reviews
Organisations can also approach salary reviews based on individual performance and current market value.
Let’s pursue with the previous example (3% available budget for salary increases):
- Employee Y is a really high performer and is currently paid 5% under the market. They are eligible for a 5% raise.
- Employee Z is a low performer and is currently paid over the market. They won’t receive a salary raise.
At the end of the day, the organisation should hit their 3% budget after assessing each and every situation fairly.
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Now, this is only theory.
In reality, the current system is not exempt from flaws.
Why is the common salary review process in need of an update
We identify (at least) 3 issues with the current way of doing things.
- Salary surveys are outdated from day one
- Looking at outdated data can prove very costly
- It endangers your employer brand
Problem #1: Salary surveys are outdated from day one
As mentioned above, a vast majority of businesses run a salary review once per year (usually done around March or April).
Now, the market data they rely on to make those decisions is outdated.
Organisations receive and look at data and salary surveys from the previous year, — and that market data will have been sent to the survey providers four months before that.
In short, HR Teams are effectively looking at market data that's already eight months old.
This could work in a world where everything is predictable, and inflation is always in check. But right now, the market is unpredictable, and inflation, as we all know, is through the roof.
Problem #2: Looking at outdated data can prove very costly
Looking at outdated pay information means you’re not getting a true reflection of the market, and your people won’t get the salary increases they need.
And when employees aren’t happy, they are likely to leave.
Especially now.
It's a candidate’s market.
The situation may change as we go into recession, but at the moment, there's more demand than supply across every industry, in every sector.
In other words, if organisations can’t meet candidates’ expectations, they’ll struggle to attract and retain them.
And what happens when employees leave?
They need to be replaced.
And because organisations are looking at outdated pay information, they’re having difficulties meeting the pay expectations of candidates living in the present.
Did you say vicious circle?
When we know that the employee turnover cost averages £30,000 (for employees earning £25,000 a year or more), relying on outdated data to make pay decisions might prove very costly for businesses.
No room for approximations
There’s no room for error:
- Miss the mark and pay under the market: risk losing your people.
- Miss the mark and pay over the market: risk losing your competitive edge.
In both cases, the impact on the financial situation of an organisation can be disastrous. After all, a single percentage point in salary increase can mean millions for large organisations.
This makes 8 months old salary surveys obsolete.
Problem #3: A danger for your employer brand
To make a long story short, your organisation won’t be top of mind for candidates and your own employees if you’re always reacting to the market with an 8-month delay.
- For an equal opportunity, candidates will likely choose a higher pay.
- You risk losing top employees to the competition if your salary grid isn’t aligned with the actual market situation.
Maintaining the gender pay gap
This system also plays in favour of the Pay Gender Gap. On top of the yearly review, research shows that men are more likely to ask for a salary raise.
In other words, because men start tend to shout more than others, a rigid system perpetuates the pay gap.
The solution? Looking at live market data
To solve this, we created Pay Tracker Live, the pay search engine for all HR teams in the UK.
Pay Tracker Live is proving particularly useful when in the middle of a perfect storm like now.
- See real pay data. Now.
As stated before, HR teams usually get their hands on eight-month-old pay data.
It’s far too long.
Pay Tracker Live pulls and aggregates data from job boards and shows you what’s happening in the market right now, whenever you need to.
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To learn more, read: What is Pay Tracker Live by HR DataHub?
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- Be proactive and show employees you care
Being proactive with pay has another advantage: it tightens the relationship between employees and their organisation.
Rewarding employees fairly based on their actual market value shows you recognise their work and nurtures a belonging feeling.
- Be notified in real-time - be the first to act.
The use of in-the-moment technology like Pay Tracker Live also means you can be notified in the event of a significant change in your market.
Let’s take an example.
You employ dozens of DevOps in Newcastle. You could create an alert and be notified if and when they fall below the market, thus giving you a chance to catch up with the market before your top employees start looking for new opportunities elsewhere.
Be proactive with Pay Tracker Live
You now know why the current salary review process most organisations still follow is not viable anymore.
Looking at live market data, HR teams find themselves in a position to make the right decisions based on what’s really happening in the market.
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Want to give it a try? Give our Pay Tracker Live a spin.
