Understanding Pay Review: A Business Guide

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This guide is designed to break down the essentials of the pay review process, making it easy to grasp and implement.

What is a pay review?

A pay review, often also referred to as a salary review, is a process where an employer assesses and potentially adjusts employees' pay. This is usually done on an annual basis but can vary depending on the company's policy.

The aim is to ensure that the salary stays competitive with the external job market and is fair in relation to an employee's performance and responsibilities.

Differentiating pay review from other HR processes:

  • Appraisals and promotions: While a performance review focuses on evaluating an employee's work over a certain period, a pay review specifically looks at the employee's pay in line with that performance. It's not just about how well an employee is doing but also whether their pay reflects their contributions.

  • Pay rise: Unlike a general pay rise, which may occur across the board or on a more ad-hoc basis, a pay review is a more structured process. It involves a thorough assessment of not just individual performance but also how the salary stands against industry standards and the job market.

  • Employee rating system and performance management software: These tools are often used during performance reviews to assess an employee's work. However, in a pay review, this information is used to determine if a salary increase is warranted.

Useful Read: Employee Management Software for small business - A Guide

The role of pay review

The pay review process is a vital part of managing a successful business and has several key roles:

  • Ensuring competitive salaries: By regularly reviewing salaries against market data and industry standards, employers can ensure they offer competitive pay. This helps attract and retain top talent.

  • Rewarding performance: Pay reviews allow employers to reward overachieving employees. By linking salary increases to individual performance, it incentivizes employees to strive for excellence.

  • Employee motivation: Regular pay reviews keep employees motivated. Knowing there's a structured process for salary assessment makes them feel valued and recognized.

  • Aligning with business goals: The pay review process ensures salaries align with the company's financial situation and business objectives. This includes considering budget constraints and planning for salary increases.

  • Non-discriminatory practices: Conducting regular and systematic pay reviews helps ensure that pay increases are fair and non-discriminatory. It supports an open communication culture where employees feel their contributions are fairly evaluated.

Preparing for a pay review

When it's time for a pay review, getting ready is key. This means setting clear goals, gathering the right information, and understanding the legal aspects. It's all about making sure you do it right and fair.

1. Setting objectives:

What should you aim for? Well, your goal as manager is to check if everyone's pay still makes sense. You want to see if the salary you're giving matches the work they're doing and if it's fair compared to what other companies pay. This is not just about possibly raising pay but making sure everyone's salary is right.

2. Gathering data:

Now, you need to collect some info. Look at what the job market's like and what other companies pay for similar jobs (market research). Also, see how much you pay your employees (internal pay scales) and how well they're doing their jobs (employee performance metrics). This will help you decide if a salary change is needed.

3. Legal considerations:

It's super important to follow the law. Make sure you're paying at least the minimum wage and treating everyone equally. You don't want to break wage laws or be unfair in your pay review.

Steps in the pay review process

Conducting a pay review is like piecing together a puzzle where each piece is crucial. It's about making sure every employee's salary is fair and right. Here's a step-by-step guide to help you through this important task.

Step 1: Review job descriptions and employee contracts.

Before anything else, you need to know exactly what each job involves. Look at the job descriptions to understand the responsibilities and skills needed. This will help you see if the salary matches the job. Also, check employee contracts to understand what you've agreed to pay and any conditions tied to salary changes.

Step 2: Gather employee performance data.

Now, it's time to see how everyone's doing. Look at performance reviews to judge each employee's work. You're trying to figure out if their performance justifies a pay increase or not. Remember, performance reviews should be recent and reflect their latest work.

Step 3: Conduct an internal audit.

This is where you look at your current salary structure. Are some people getting paid a lot more for similar work? This step is all about fairness and making sure there's no big unfair gap in what people are paid.

Step 4: Collect employee feedback and self-evaluation forms.

Hearing from your employees is crucial. Ask them to fill out self-evaluation forms and provide feedback. This will give you insight into their view of their work and salary expectations. It's also a chance for them to talk about any successful projects they've led or been part of.

Step 5: Plan the upcoming pay review meeting.

Set a date for the pay review meeting. This is when you'll discuss and decide on salary changes. Make sure you give yourself and your team enough time to prepare. This meeting is key to a successful pay review process.

Step 6: Analyze market data for salary reviews.

Look at what other companies are paying for similar jobs. This helps you stay competitive and ensures you're paying a fair salary. You don't want to lose good employees because you're not paying enough.

Step 7: Make decisions about pay increases.

Now, with all the information in hand, decide who gets a pay rise and how much. Think about the company's budget, the employee's performance, and what the job market looks like. You're aiming for a balance where employees feel rewarded and the business can afford the new salary amounts.

Step 8: Communicate decisions and prepare for the next pay review.

Once decisions are made, talk to your employees. Let them know if they're getting a salary increase and why. Also, start planning for the next yearly pay rise. This way, you're always ready and your employees know what to expect.

By following these steps, you can conduct a pay review that's fair, transparent, and effective. Remember, a good pay review process not only helps in retaining talent but also in making sure your employees feel valued and motivated.

How to evaluate the candidate for the pay review?

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Evaluating a candidate for a pay review is a careful balancing act. It's about being fair, recognizing their hard work, and also making sure it fits what your company can do. Here's how to go about it:

  • Understanding the job description: Start by making sure you really know what the job involves. Look at the job description closely. Does the employee's work match up with what's expected? Have they taken on more responsibilities? This is your baseline for evaluating their performance.

  • Reviewing their performance on successful projects: Think about the projects they've worked on. Has the employee led or contributed to any successful projects? This can be a big factor in deciding if they deserve a new salary amount.

  • Checking retention rates and their role: How does this employee affect your team's performance and happiness? If they're key to keeping a good team together, that's important. High retention rates can sometimes be tied to having strong performers on your team.

  • Guiding employees during the planning phase: During the planning phase of the pay review, guide your employees. Let them know what you're looking for and how they can show their best work. This clarity helps both you and them.

  • Looking at overperformance: Reward overperformers. If an employee consistently goes above and beyond, it should be recognized. This not only rewards them but also sets a standard for others.

  • Considering a pay freeze and contract terms: Sometimes, due to budget constraints, a pay freeze is necessary. If this is the case, be open about it and explain why. Also, double check contract terms to make sure any changes you're considering are allowed.

  • Giving sufficient time for evaluation: Don't rush this process. Give yourself enough time to really look at each candidate's performance. This ensures your decision is fair and thought out.

  • Managers' input: Managers often have the closest view of an employee's performance. Get their input as it can be crucial in making a fair decision.

Remember, a pay review isn't just a task to check off. It's a key part of how you guide and motivate your team. Done well, it shows your employees they're valued and encourages them to keep doing great work.

Communicating pay review outcomes

When it's time to talk about pay review results, good communication is key. Here are three best practices for doing it right:

  • Be clear and direct: When you tell employees about their new salary, be straightforward. Explain how you made your decision and why. This helps employees understand the process and see it as fair.

  • Personalized meetings: Have one-on-one meetings to discuss pay changes. This shows respect and gives employees a chance to talk about their thoughts and questions in private.

  • Provide written documentation: Give employees a written record of their new salary and any other changes. This avoids confusion and gives them something to refer back to.

Handling sensitive discussions and managing expectations

When discussing pay review outcomes, it's important to be empathetic yet firm. Understand that conversations about salary can be emotionally charged, but maintain your stance if the decisions made are fair and justified.

Be prepared to address any questions employees might have about their raise, or why others received more, by clearly explaining the rationale behind these decisions. Additionally, guide employees by setting future goals and advising them on how they could achieve a larger raise in subsequent reviews. This approach not only manages expectations but also motivates employees for future performance.

Addressing grievances and appeals

Sometimes, employees might not agree with their pay review outcome. Here's how to handle it:

  • Listen to their concerns: Give them a chance to explain why they think the decision was wrong.

  • Review their case: If they have a point, be open to re-evaluating their salary.

  • Be transparent about your final decision: Explain why you're sticking with the original decision or why you're changing it.

  • Make sure the process is fair: If there are a lot of grievances, it might be a sign you need to look at your pay review process again.

Tools and resources for effective pay reviews

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 Here's an overview of some software and tools that can be a big help:

  • Performance management software: This type of software lets you track and analyze employee performance throughout the year. It's great for keeping all the data you need in one place, making it easier to review when it's time for salary decisions.

Useful Read: The 6 top Employee Performance Management Trends

  • HR management systems (HRMS): An HRMS can integrate various aspects of HR work, including pay review processes. It can store employee data, performance records, and salary histories, making it easier to compare and make informed decisions.

  • Salary benchmarking tools: These tools provide access to up-to-date market data, helping you understand how your pay scales compare with industry standards. This is crucial for ensuring your salaries are competitive.

  • Survey and feedback tools: Gathering employee feedback is an important part of the pay review process. Tools that allow you to create and distribute surveys can help you collect valuable insights from your employees.

  • Spreadsheet software: Sometimes, simple tools like spreadsheets are incredibly useful for organizing and analyzing data. They can be used for creating salary matrices, comparison charts, and budget forecasts.

  • Compensation management software: This specialized software helps in planning, allocating, and managing employee compensation. It allows for more precise and efficient handling of the salary review process.

By leveraging these tools, you can conduct more efficient, accurate, and fair pay reviews. They not only simplify the process but also help in making data-driven decisions that are crucial for maintaining employee satisfaction and retention.

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Effectively conducting pay reviews is crucial for maintaining a motivated and fairly compensated workforce. From understanding the pay review process to utilizing the right tools and strategies, each step plays a vital role in ensuring your business remains competitive and equitable.

Remember, transparent communication and empathetic handling of employee concerns are key to a successful pay review process. By following these guidelines, employers and HR professionals can foster a positive work environment where employees feel valued and businesses thrive.

Topic: Pay
Rinaily Bonifacio

Written by:

Rinaily Bonifacio

Rinaily is a renowned expert in the field of human resources with years of industry experience. With a passion for writing high-quality HR content, Rinaily brings a unique perspective to the challenges and opportunities of the modern workplace. As an experienced HR professional and content writer, She has contributed to leading publications in the field of HR.


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