A regular pay rise for valued employees is common practice in many Australian businesses. In a perfect world, most employers would like to be able to provide each employee with a salary increase each year; in reality, the business budget only stretches so far.
Pay rises are usually at the discretion of managers with each business taking a different approach. While some employers cover off salary increases in the offer letter or employment contract, others will discuss and issue any wage increase during annual employee appraisals.
The process varies from business to business, however when fairly evaluating each employee and determining wage increase is, it is important to use set factors.
What factors determine pay rises?
Employee performance
The first place to start when considering issuing a pay rise is the employee’s performance.
Did the employee put in extra hours to complete an urgent project? Did the employee go to extra lengths to support a challenging client? Is an employee being fairly compensated for important responsibilities?
Checking in regularly with employees and conducting annual performance reviews should provide all the information needed to assess their performance, attitude, and conduct.
Market and competitor rates
It is important to be aware of what competitors are paying their employees in similar roles. Employers should be across typical market rates and average salaries across the industry to ensure employees are receiving appropriate wages.
Of course, wages and individual salaries will vary depending on geographical location and business size. It is therefore worth looking at the minimum and maximum wages and applying this information to the business as appropriate.
Special skills
Another important factor to consider is if the employee can demonstrate special skills that set them apart from their coworkers. This could be competence in another language that allows the business to tap into markets in a different country. Or the ability to use highly specialised software without requiring training, and training other team members, saving the business effort and money.
Any unusual skills that are highly desirable in the market and give the business a competitive edge deserve to be rewarded. It is also important to remember that highly skilled or specialised employees are likely to be approached by competitors with a more attractive offer. Offering a pay rise not only shows employees they are a valued member of the team, but it can also help with retention and at the same time boost their commitment to the business.
Length of employment
Recruitment and onboarding are costly, and each time an employee leaves it is an expenditure for the business. So, employees who stay can add a lot of value. If salaries are attractive, employees are more likely to be motivated to stay on, saving unnecessary costs in the long run.
How often should wage increases occur?
There are different approaches to determining how often an employer increases wages. Some businesses specify in the offer letter or employment contract that salaries will be reviewed on an annual basis. If this is the case, any pay raise will often be determined in conjunction with their annual employee appraisal or performance review. That said, just because the business is required to review an employee’s salary at specific interims, there is no obligation to issue a pay rise if the criteria is not met.
Other businesses have no such provision and simply consider raising wages when an employee reaches a certain milestone or closes a particularly lucrative deal for the company. Rather than setting fixed dates for reviews, this approach allows for more flexibility.
How do I communicate a pay rise?
When it comes to discussing salaries, it can often be a sensitive subject. While some employees will be happy to receive the good news, others may be disappointed if they were expecting a higher pay rise or had to wait a bit longer for a wage increase.
When communicating a pay rise, employers can ensure best practice by following these steps:
- Discuss the matter in a private, one-on-one meeting.
- Clearly explain the reasons for the pay rise such (i.e., inflation, outstanding performance, consistently exceptional work ethic etc).
- Specify the new salary amount in figures rather than as a percentage to remove any ambiguity. Employees will know what $800 means, but 2% can sound unspecific.
- Do not downplay the increase or apologise that it is not higher.
- Notify HR about the increase and make sure it is implemented in the earliest possible payroll cycle.
What are some alternatives to a pay rise?
Despite the best of intentions, wage increases are not always feasible, especially if the business is not in a financial position to do so. There are, however, alternatives employers can offer instead of pay. These include:
- Flexible work arrangements
- Promotion into a more senior role where appropriate
- Attractive perks like a company car or shares in the business
- Extra training courses and certifications paid for by the employer
- Additional annual leave
- Health and wellbeing initiatives
Non-financial perks and rewards can go a long way in terms of employee satisfaction and motivation.
Pay rises can be tricky to navigate, but having clear processes will help empower managers to make more confident decisions when evaluating each salary increase. Employees will always appreciate it if their hard work is recognised and rewarded, and ultimately it will benefit the business by retaining top talent, and saving on employee churn costs in the long term.
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