Pay Review Guide for HR Teams & Hiring Managers
For many companies, regular pay reviews are a great way of matching pay to performance on a one-to-one basis. But reviews can play a wider role, too, by motivating high-value employees, supporting a fairer company culture, and boosting retention.
We lift the lid on how best to prepare and conduct your pay reviews, why they are so important, common pitfalls and much more. Discover how to make your pay reviews more successful.
What is a Pay Review?
A pay review is an assessment that ensures an employee’s compensation is fair and in line with their position, work performance and company budgets. Typically run by a Line Manager, HR Manager or other pay professional, a pay review also considers external factors such as changes in the cost of living and comparative market pay rates.
Why are Pay Reviews Important?
Apart from the moral implications of underpaying, business leaders shouldn’t forget that poorly paid employees can be a big commercial risk, too. Pay reviews are a useful tool to keep individual salaries fair and linked to personal achievement and effort, but drive wider business benefits too, including:
- Increased Productivity: People earning below average or under-paid for their work are less likely to be motivated to do more, while well-compensated employees incentivised by solid goals and tempting rewards will be much more productive.
- Retaining Top Talent: Employees satisfied with their pay are more likely to mature their skills within the business and add extra value over time. Salary reviews make it easier to retain your top talent and save you the time and cost of unnecessary recruitment, onboarding and training.
- Fairness Culture: Pay based on performance and development, and correctly benchmarked against market standards, creates a fairer culture that promotes pay equity and irons out unintended bias that impacts women or minorities.
- Market Alignment: An annual salary review is an opportunity to benchmark pay for specific roles against job market averages and check your pay structure is properly aligned with today’s market pay trends.
- Managing Costs: Salary reviews form part of a structured process for keeping individual salaries and rewards in line with your overall pay budget and wider rewards strategy.
How Often Should You Have Pay Reviews?
Although annual pay reviews are the norm in most businesses, some prefer more frequent reviews to align with six-monthly personal appraisals, promotions to a new role or the close of a significant project or milestone.
Often, frequency is all down to an industry standard or dictated by a company policy or the conditions of a specific employment contract.
Running salary reviews more often than the customary annual ‘sit down’ can provide a useful safety valve to quickly sort out individual performance issues, pick up any pay inconsistencies or react swiftly to changes in salary expectations.
Regular pay reviews give employees more opportunity to express concerns about their role and for employers to update their assessment of a person’s value to the business and potential for growth.
Coupling your salary reviews with regular pay benchmarking is also a good way of keeping your eye on market averages to check that you are offering attractive salary rates that help recruitment and retention by matching competitor salaries and keeping up with rises in the cost of living.
How to Conduct a Pay Review
Pay reviews are much more than an evaluation process. Done correctly, they are also a great opportunity for managers to build stronger bonds with their teams, align individual efforts with company goals and underscore your corporate values and purpose.
Check our HR DataHub Pay Review Framework for structured, fairer and more scalable salary review planning >>
1. Preparation is Everything
Before the pay review meeting, research thoroughly by collating all necessary information, from contract and job description to benchmarking and pay budgets. See below for a full checklist of preparation steps (Preparing for a Pay Review Meeting).
2. Pre-Review Self-Evaluation
Use questionnaires or surveys in advance of the pay review to find out how each employee rates their own performance. This can reveal fascinating insights into the employee’s perception of their own strengths and challenges and provide an easy way of structuring discussions in the meeting itself.
3. Consistent Measurement
Design a standardised scoring system or matrix to evaluate your people against pre-agreed employee performance targets. Objectives will vary from employee to employee, but having consistent measurement criteria lets you track progress more easily and make better comparisons across the business.
4. Choose a Methodology
Decide a basis for awarding pay increases and apply consistently across all your salary reviews. Possible methodologies include:
- Flat Rate Increases: Implement a uniform percentage increase for all employees. While simple, this approach may not address disparities or reward high performers sufficiently.
- Manager Discretion: Empower Managers to allocate increases based on the specific needs of their team. In this case, clear guidelines are important to reduce the risk of bias.
- Performance-Based Matrices: This approach considers employee performance and current position in the pay range. For example, high performers in the lower part of their range receive higher salary increases, whereas employees already at the upper end of their range receive smaller or no increases.
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5. Apply Adjustments
Using your chosen methodology and the data collected in your pay review preparation (see Preparing for a Pay Review Meeting), calculate the necessary salary increases. Combine self-evaluations with your own employee performance data and benchmark (using HR DataHub) to cross-check current salaries and proposed increases against market averages.
6. Inclusive Review Process
Having your employees fully informed about what they can expect at each stage of the pay review process helps to keep them onside and more engaged. A relaxed participant is more likely to open up, contribute ideas and take a positive, active part in the review meeting.
- Train Your Managers: Make sure the pay review format is consistently applied business-wide by sharing best practice with your managers, from software training to assessment techniques, scoring and how to manage the pay review process from start to finish.
- Effective Follow-Up: The pay review isn’t over when the meeting ends. Clarity and transparency are critical, so it’s important the employee receives a concise summary of what’s been discussed and agreed in the review, including the impact of their performance on any pay adjustments and when salary changes will take effect.
Back your pay reviews with essential insights into pay and rewards. Learn from the experts at the HR DataHub Reward School Episode 1 >>
Preparing for a Pay Review Meeting
Salary reviews typically require careful planning and information gathering. Pay can be a sensitive subject, so it’s important to have all necessary data available and double-checked beforehand to avoid misunderstandings in the pay review itself. It helps to follow a checklist of preparation steps:
1. Strategic Context
Take a step back to decide the strategic aims of the salary review process. For instance, you may want to consider the following:
- Is there a need to maintain market competitiveness and tighten retention?
- Are inflation or the rising cost of living having a severe impact on your employees?
- Or perhaps internal pay inequality is urging a shift to pay transparency or performance-based rewards?
Understanding the strategic context behind your pay reviews can help to frame more productive conversations with employees from the outset.
2. Review Objectives
What is the specific salary review trying to achieve? For instance, you may want to consider the following:
- Will the review be communicating an upcoming promotion or change of role?
- Or will it be discussing performance issues and result in a pay freeze until the colleague steps up productivity?
Setting objectives may require consultation with other stakeholders in advance so that expectations are agreed upon by all parties.
3. Check Contract Terms
Does the employee’s employment contract include any clauses or terms that could affect the pay review process? For example:
- Is the employee’s pay rate fixed for an initial probationary period?
- Or are they contractually entitled to pay reviews at certain times of the year?
Understanding these obligations ahead of the review itself ensures the company steers clear of unintentional breaches of contract.
4. Salary Benchmarking
Find out how the salaries to be discussed in the pay review compare to the going market rates. Market pay rates can change quickly and vary by industry sector and location, so use a real-time benchmarking platform like HR DataHub to get truthful and up-to-date comparisons. Benchmarks can quickly expose pay differences, make review discussions more open and ease agreement on salary adjustments.
5. Revisit Job Description
What are the requirements set out in the job description? Sometimes, the responsibilities associated with a role can be overlooked, especially with longstanding employees whose jobs have evolved over time. Consulting the job description helps pinpoint the employee’s specific responsibilities and whether they are being successfully followed.
6. Calculate Pay Budget
How much can the company afford to pay? Budget planning considers the future wage demand of the whole company and external factors like:
- Minimum wage inflation
- Government legislation
- Rises in employer’s National Insurance
Know your budget well in advance of the pay review and how much you can afford to increase the salary for a specific role.
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7. Performance Review
Most importantly, is employee performance living up to expectations? Are they successfully fulfilling their responsibilities and hitting their personal objectives? Deciding whether they are under-performing, over-performing or just ‘on track’ may require consultation with other stakeholders and analysis of performance data.
Either way, be clear before the pay review and decide which direction the conversation should take.
Are Pay Reviews Mandatory in the UK?
Pay reviews are widely thought of as best practice and an effective way to drive fairness and motivation in the workplace. In the UK, businesses are not legally obliged to conduct pay reviews for their staff unless specific employment contracts or agreements mandate that reviews are to be held.
However, all UK employers are bound by law to comply with the Government’s latest legislation on the National Minimum Wage (NMW) for employees of at least school-leaving age and the National Living Wage (NLW) for those aged 21 and over.
On 1st April 2025, the NMW will rise to £7.55 per hour (for apprentices and under 18s) and £10.00 per hour (for 18–20-year-olds). At the same time, the NLW will be increasing to £12.21 per hour.
Common Challenges in Pay Reviews and How to Overcome Them
1. Budget Constraints
We can’t always afford to pay our people as much as they want, especially if business performance doesn’t allow it, the economy is sluggish, and the cost of living continues to creep up. But while there’s no easy way to conjure up more money, we can be smarter about where to focus increases within a limited pay budget. Tip: Accurate salary benchmarking (e.g. with HR DataHub) provides a detailed picture of the specific roles in most urgent need of wage increases.
2. Pay Compression
As minimum wage rates rise, pay gaps can shrink over time and gradually distort established pay structures. As well as demotivating some employees, squeezed salary differentials can give HR and pay teams very little room to manoeuvre when it comes to negotiating pay rises. Tip: Back your company-wide pay strategy with a real-time view of pay averages for every role to quickly spot upward trends. Use a mix of pay and other rewards to differentiate compensation between levels.
3. Lack of Transparency
Without pay transparency, it’s easy for some employees to speculate they are being underpaid and perceive that colleagues with equivalent roles are earning more. This lack of knowledge can breed misinformation, create a perception of unfairness and add unnecessary tension to the review process. Tip: Adopt a more transparent approach and level playing field by using HR DataHub to identify the fair market rates for specific roles and openly communicate to colleagues.
4. Unrealistic Expectations
During a pay review, be prepared for the salary expectations of some employees to be out of line with reality.
For instance, an under-performer may have a rose-tinted perception of their achievements and expect to be rewarded with a pay rise or promotion.
Tip: Before the pay review, ensure you have a clear understanding of their responsibilities (via their JD), performance history (by checking performance data and cross-checking with all relevant stakeholders) and how their salary compares to the current market average for their role.
Tools and Resources for Pay Reviews
Pay reviews should always consider the wider economic and social factors. Keep right up to date with the latest market data, trends and forecasts via a choice of useful and free information sources:
- Check the UK Rate of Inflation
The ONS (Office for National Statistics) website tracks changes in the price of goods and services over time, including consumer price inflation, producer price inflation and the House Price Index.
https://www.ons.gov.uk/economy/inflationandpriceindices
- Forecast the UK Rate of Inflation
The OBR (Office for Budget Responsibility) website publishes economic forecasts for future changes in the Consumer Prices Index (CPI inflation) and the Retail Prices Index (RPI).
https://obr.uk/forecasts-in-depth/the-economy-forecast/inflation/
- View the UK Economic Outlook
The KPMG website produces forecasts of the UK’s economic performance, including GDP growth, investment, consumer spending, interest rates, inflation and trends in the labour market.
https://kpmg.com/uk/en/home/insights/2018/09/uk-economic-outlook.html
- Understand Socio-Economic Trends
The NIESR (National Institute of Economic and Social Research) website provides insights into economic performance and how this translates into social change.
https://niesr.ac.uk/
HR DataHub also provides a range of resources to help pay professionals and HR teams plan and implement more successful pay reviews:
- Reward Toolkit: Use our HR DataHub Pay Range and Review Toolkit to design fair, competitive, data-driven pay structures with benchmarked pay rates and clear salary ranges. https://www.hrdatahub.com/resource/reward-toolkit
- Reward School: Sign up for our three-part webinar series to learn the essentials of pay and rewards. Whether you’re new to benchmarking or in need of a knowledge refresh, get expert insights into the building blocks of pay, creating salary ranges and reviewing and adjusting pay.https://www.hrdatahub.com/register-webinar/reward-school-episode-1-introduction-to-reward
Benchmark Salaries with HR Datahub for Your Next Pay Review
HR teams and hiring managers use HR DataHub to perform real-time benchmarking as an integral part of the pay review process and ensure:
- Reliable Pay Insights: Be certain the salary you’re paying for a specific role meets or is close to the market average and enough to retain your key personnel.
- Up-To-Date Pay Data: Support your pay discussions with market salary information that’s gathered in real time and based on today’s going pay rates.
- Instant Pay Intel: Save hours and days of scraping salaries from recruitment sites as part of your salary review preparation.
- Business-Tailored: Get market pay averages adjusted for roles within your business based on your location, industry sector and company size.
HR DataHub is a powerful salary benchmarking tool that helps you overcome the challenges of planning and conducting your pay reviews. Its live salary insights are backed by data from over 30 million UK job postings, giving real time pay benchmarks for any role in any UK location.
Thousands of HR and pay professionals rely on HR DataHub to make confident, well-informed decisions about pay, from preparing and running pay reviews to planning salary budgets, architecting salary strategies and designing recruitment campaigns.
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