Posted 11 days by Jonny Grange
Pay reviews are an important part of managing salaries, retaining employees and keeping pay competitive. But without a clear process, decisions can become inconsistent, budgets can be stretched and employees can be left dissatisfied.
At Digital Waffle, we help employers make informed salary decisions using current market data and specialist recruitment insights.
In this blog, we explain how to run a pay review step by step, handle difficult decisions and avoid common mistakes.
What is a pay review?
A pay review is a structured process for assessing whether employees' salaries are fair, competitive and in line with their performance and market value, and deciding what increases to make. It is usually run once a year, sometimes twice in fast-moving markets.
A good pay review sets a budget first, benchmarks every role against current market data, allocates increases on a consistent basis and communicates the outcome clearly to each person, including those receiving nothing.
It is different from a one-off pay rise request, which responds to an individual. A pay review looks at everyone at the same time, against the same criteria.
Why does running a pay review properly matter?
An unstructured pay review is not a neutral event. It creates problems that surface later in retention, hiring and trust.
Unstructured pay drifts away from the market
When salaries are only adjusted when someone asks, pay follows negotiation rather than value. Within two or three years, long-serving staff sit below the rates new hires are offered, and the gap is usually discovered when someone resigns for a 20 percent increase elsewhere. A review that benchmarks every role catches that drift before it costs you people.
Read more: Why employee retention matters (and how to improve it)
Inconsistency gets noticed
People talk about pay, and pay transparency expectations are rising. If two people doing the same job at the same level are paid very differently for no reason anyone can explain, the explanation will be assumed to be unfair. A structured review gives every salary a reason, which is what you need when the question is asked.
It is cheaper than replacing people
A considered increase for a strong performer typically costs a fraction of recruiting, onboarding and training their replacement, before counting the lost output while the role is empty. Pay reviews are a retention tool, and they work best when they are predictable rather than reactive.
Read more: The true cost of a mis-hire & how you can avoid this
How to run a pay review step by step
The process below works for a business of any size and does not assume a dedicated HR team. Set aside a few weeks from start to finish, with most of the work in the first two.
Step 1: Set the timing and tell people in advance
Pick a fixed point in the year, ideally after your financial results are clear and before budgets are locked. Tell the team when the review will happen, what it will consider and when they will hear the outcome. A known date stops pay conversations happening at random throughout the year and gives managers a legitimate answer when someone asks in month three.
Step 2: Agree the budget first
Decide how much the business can commit to increases before looking at any individual. Express it as a percentage of total salary cost, with a view on whether it needs to stretch for particular roles where the market has moved sharply. Setting the budget first keeps the review honest. Setting it after looking at names makes it a negotiation.
Step 3: Benchmark every role against the market
Compare each role's current salary with what the market pays now, not last year. Use more than one source: published salary guides, live job advert data and a conversation with a specialist recruiter who sees offers being made and accepted every week. Our salary guides cover current UK rates across marketing and sales, tech, IT and data. It’s a good place to start.
Note which roles sit below, at or above market. That picture usually explains most of your retention risk before you have looked at performance.
Step 4: Decide your criteria and apply them to everyone
Decide what drives an increase and in what proportion. Most businesses use a combination of market position, performance over the review period and any change in responsibility. Write the criteria down and apply them to every person in the same way. This is the step that turns a pay review from a set of individual conversations into a fair process.
If you have salary bands, this becomes simpler: position in the band, performance and market movement give you a defensible answer for every role.
Read more: How to set salary bands for your business
Step 5: Model the outcome and check it
Put every proposed increase into one place and check three things. Does the total fit the budget? Are the biggest increases going to the people who are furthest below market or performing best, rather than those who negotiated hardest? And is there any pattern by gender, age or team that you could not explain? Fix problems here, before anything is communicated.
Step 6: Brief managers before the conversations
Managers deliver most pay review outcomes, and they deliver them badly when they do not understand the reasoning. Give each manager the figures for their team, the criteria used and the answers to the predictable questions: why this amount, why not more, what would change it next time. A manager who can explain a decision is far more effective than one who can only relay it.
Step 7: Communicate individually and in writing
Tell each person their outcome in a one-to-one conversation, with the reasoning, and follow it up in writing with the new salary and the date it applies from. Do this for everyone, including people receiving no increase. Silence is worse than a clear no with reasons, and a written record prevents confusion later.
Step 8: Record the decisions and set the next date
Keep a simple record of what was decided, why and what was said about the future. Then put the next review date in the diary. The second review is far easier than the first, because the benchmarks, criteria and records already exist.
How to handle the difficult cases
Every pay review has a few. Handling them consistently is what protects the credibility of the whole process.
Someone far below market value
If benchmarking shows a strong performer sitting well below the market rate, the right move is usually to correct it, even if that means an increase larger than the standard percentage. The alternative is to wait until they find out from a job advert, at which point the conversation is a counter-offer rather than a review. If the gap is too large to close in one step, agree to a two-stage plan with dates.
Someone above market value
A person paid above the market rate for their role does not need a cut. Hold their pay steady, explain why and let the market catch up. Be honest about it rather than inventing a performance reason that does not exist.
A pay rise request outside the review
Having a fixed review date gives you a fair answer: the request will be considered at the review, with the same criteria as everyone else. The exception is a role where the market has moved sharply or a responsibility that has changed significantly, where waiting risks losing the person. Decide those on their merits and record why.
No budget this year
Sometimes the honest answer is that the business cannot afford increases. Say so clearly, explain the circumstances and say when it will be reviewed again. Consider what else you can offer: additional holiday, flexibility, development investment or a defined review point in six months. People accept a difficult year far more readily than they accept being left guessing.
Read more: How to create personalised employee development plans
Mistakes to avoid when running a pay review
Most pay reviews that cause problems do so for one of a small number of reasons.
Rewarding the loudest
The people who ask most often are not always the people who deserve the most. A review that responds to pressure rather than criteria teaches the team that asking is the route to a rise, and penalises the people who get on with the work.
Using last year's market data
Salaries in tech, digital, data and marketing can move noticeably within a year. Benchmarks from a guide published 18 months ago will leave you quietly below the rates candidates are being offered elsewhere.
Treating performance and pay reviews as the same conversation
Performance conversations are about development. Pay conversations are about money. Combining them means the person hears only the number and misses the feedback, or hears the feedback as justification for the number. Run the performance review first, then the pay review a few weeks later, informed by it.
H3 - Skipping the no-increase conversations
People who receive nothing deserve a conversation and a reason as much as those who receive the most. Leaving them to notice the absence of a change is how a fair decision becomes a resentment.
Read more: The importance of investing in employee growth
How a recruitment partner helps with pay reviews
Published data tells you where the market was. A specialist recruiter tells you where it is this month, because they see the offers being made and accepted across your sector every week.
At Digital Waffle, we help employers benchmark roles before a review, sense-check proposed increases against live market data and identify the roles where a small adjustment now prevents a resignation later.
Our salary guides are the starting point, and a conversation with one of our consultants fills in what the guides cannot.
Running a pay review properly is a few weeks of structured work once a year: set the budget, benchmark every role, apply the same criteria to everyone, check the result and communicate it clearly. It does not need an HR department. It needs current data, written criteria and the discipline to follow them.
The businesses that handle pay best are rarely the ones that pay the most. They are the ones where every salary has a reason behind it, every person knows when the next conversation will happen and nobody has to resign to find out what they are worth.
Need support finding and securing top talent? Submit your vacancy and one of our consultants will be in touch to talk through what you need.
