Start Planning for Salary Reviews Now!
June 2021 economic data indicates that the New Zealand and Australian economies are performing at least as well as pre-pandemic levels, and far better than expected.
The better-than-forecast figures can be largely attributed to both countries keeping Covid-19 in check as well as the large and timely monetary and fiscal stimulus from the Government. As a result, both countries have been able to reopen their domestic economies before other advanced nations, boosting employment and consumer spending.
Newshub reports that Australian recruiters are traveling to New Zealand to poach Kiwi employees, and due to skill shortages in Australia, are offering salaries that are double on present earnings in some cases.
It seems Aussie firms are willing to pay high salaries to fill their labour shortages and it is not just lawyers and other professionals they want – they are reportedly also targeting people with skills in other industries e.g. construction and engineering.
With this in mind, to retain skilled employees employers need to start planning for salary reviews earlier than usual.
According to the Hays Salary Guide FY21/22 while 50% of employers surveyed kept salaries steady in 2020, 67% were planning to increase salaries in their next review, with 12% expecting to award increases of 3% or more. But, 67% of employees who were surveyed said they thought a raise of 3% or more would better reflect their, individual performance, so, there is quite a considerable difference in expectations between employee and their managers who were surveyed. Employers will need to carefully manage expectations if they wish to attract and retain employees in the current skills short market.
How frequently should salary reviews be carried out?
Because of the fast-changing environment in which businesses are operating today, employers would be wise to consider carrying out twice-yearly salary reviews to make sure salaries remain competitive with the market, as well as keeping up with internal changes.
Although a salary review does not always result in an increase, it does ensure that the business keeps up to date with its competitors and that employees remain motivated because they know they are being fairly compensated. Conducting a regular, structured salary review for all positions ensures that employees are appropriately paid and understand the logic and opportunity of the wage range assigned to their position. It also gives the employer the opportunity to adjust for changes in responsibility or duties that should be reflected in a salary change, as well as making adjustments for external factors such as changes in the cost of living or changes in industry standards.
Currently, disruptions to markets from Covid-19 are far from over and salary budgets remain tight. Therefore, it remains as important as ever for employers to ensure they are paying the right amount, which can be achieved by knowing what jobs are worth in the (external) job market, as well as the value internally. Although many employers kept salaries steady in 2020, some had to reduce salaries and hours, and these cases should be revisited as soon as possible.
In terms of external comparison, salary benchmarking is a process by which you match internal jobs and their descriptions to similar jobs and descriptions in a salary survey or other source of market pay data, so that you can identify a range that the market is paying for each position. Below are some examples of when a company may benefit from this information:
- To provide data for the regular salary review process
- An individual has been promoted into a newly created role or transferred
- Ensuring top performers are satisfied with their remuneration and not a potential flight risk
- A merger or company sale/acquisition has taken place
- A restructure
- Pay equity checks
- Hot skills/geographic pay differentials
What other factors should be considered when carrying out salary reviews?
- Remuneration strategies must be aligned with your organisational culture e.g. if you talk about the importance of being a team player and of achieving quality standards, but you assess performance based only on individual quantitative results, you can’t expect the remuneration to support these goals.
- Total rewards – don’t forget that people are motivated by more than money and that rewards from work include both tangible (monetary) rewards as well as intangible (nonmonetary) rewards such as training, career development opportunities, work culture, flexible working hours and a biggie is recognition.
- NZ minimum wage – are you aware there are three different types of minimum wage rates i.e., adult, starting out and training? And do you know when a person on the starting out wage or training wage needs to progress to the adult minimum wage? These rates can be found on Employment New Zealand’s website.
There are no silver bullets for a successful compensation programme, however at ConsultingHQ we believe that the key to a successful programme doesn’t have to be complicated and is more about making sure that it fits with your company’s business strategy and work culture and makes sense to your people.
We can assist you with all remuneration related matters e.g. the review process, job descriptions (so that you can get an accurate analysis of market comparison data), review spreadsheet templates, incentive plan structures, and advice on some of those tricky compensation challenges, such as:
- You have high-performing employees who are currently paid above the market. You would like to give them an increase, but you are aware that you should slow down their pay increases.
- How do you manage this situation without demotivating them?
- You only have a small percentage salary review budget this year, say 2%, how can you differentiate pay and performance with such a small budget?
- A team member has given me salary data from a recruiter or the internet that suggests they are underpaid – how do I manage this?
- We are currently recruiting and find that candidates are asking for a higher level of pay than people who are proven performers in the same job are getting – what should we do about this?