3 do's & 3 don'ts of conducting an annual salary review

May 23, 2023
min read


Table of contents


As an HR manager, conducting an annual compensation review can be a daunting task. But fear not, because with a little bit of planning and some helpful tips, you can make the process a breeze. Here are three do's and three don'ts of conducting an annual compensation review that will make the process more efficient and effective.

Here are three things you should do for your annual compensation review

Do #1: Communicate Clearly

There are two types of communication that you need to have down pat to ensure a smooth process.

The first is for your managers:
  • Clear communication & resources to onboard managers on the process
  • Set up meetings & trainings so they know how to process the info and represent their team the best way possible

The second is for everyone else:
  • Establish clear communication to all (individual contributors mostly), for them to know key information about the upcoming review such as:
  • The process & timeline
  • Information to prepare for the review (you could even provide them with a checklist) 
  • The criteria taken into account
  • Consider scheduling a meeting or using a tool to allow them to ask their questions

This is especially key in building employee trust and therefore retention. 

Do #2: Do align with your company's compensation philosophy

Just as a refresher, a compensation philosophy is not the same thing as a compensation policy

A compensation philosophy is somewhat similar to a company mission statement with a focus on compensation. It’s supposed to answer two main questions:

  • What are your goals in terms of compensation?
  • Why do you believe in these goals?

Therefore any action taken around compensation should be consistent with this philosophy especially for annual reviews. 

Here are just a few of many examples of where alignment is key:

If one of your goals is fairness: 

  • For manual adjustments, will you take steps to evaluate & reduce the pay gap? 
  • For market adjustments, will you adjust fixed salaries to align with the market? 

If one of your goals is retention: 

  • For bonus structures, will you reward only top performers? 
  • For inflation adjustment, will you apply an increase to all? To some? 

Do #3: Use Benchmarking

One of the most effective ways to conduct an annual compensation review is to use benchmarking. This involves comparing your company's compensation practices to those of other companies in your industry. 

Benchmarking can supercharge your organization from employee retention to attraction. Learn how here.

Three things you shouldn’t do when conducting your annual compensation review

Don't #1: Don't Delay

One of the biggest mistakes you can make when conducting an annual compensation review is to delay it. This can cause confusion and frustration among employees and can lead to resentment if they feel they have been overlooked.

To avoid this, make sure to schedule the review well in advance and stick to the schedule. This will give employees plenty of time to prepare and will ensure that the process is completed in a timely manner.

Don't #2: Don't Be Unfair

Another mistake you should avoid when conducting an annual compensation review is being unfair. This can mean playing favorites or treating employees differently based on personal biases or opinions.

To be fair, our team at Figures recommends the following:

Use a standardized evaluation process. 
  • This could include using a predetermined set of criteria to evaluate employee performance or using a standardized form to document the review.

Basing your compensation reviews on facts such as:
  • Performance ratings based on precise and pre-defined criteria (such as individual objectives or career paths), in a global process, which make the evaluation fair and consistent cross-team, department or levels.
  • Market positioning
  • Inflation per country

Don't #3: Don't Neglect to Follow Up

The final mistake you should avoid when conducting an annual compensation review is neglecting to follow up. This means failing to address any issues or concerns that come up during the review or failing to communicate the results to employees.

To avoid this, make sure to schedule follow-up meetings with employees to discuss any issues or concerns that come up during the review. Also, make sure to communicate the results of the review to employees in a timely manner.

In conclusion, conducting an annual compensation review can be a daunting task, but with a little bit of planning and some helpful tips, you can make the process a breeze. Happy reviewing, HR managers!

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