How Companies Really Conduct Salary Reviews
Salary reviews are among the most sensitive HR processes. On paper, they may seem like a straightforward science: market analyses, salary bands, benchmarking. In practice, however, companies mix hard data with their own culture, budget constraints, and individual leadership styles. A survey of 140 companies shows: there is no single “right” way, but successful salary review processes follow recognizable patterns.
Different Cadences – From Annual to Continuous
- 45% of companies follow a classic annual cycle, while 23% combine this with ad-hoc adjustments.
- Small companies experiment more frequently: 8% review salaries continuously.
- Larger organizations typically stick to an annual rhythm, as more frequent cycles are often difficult to manage.
- Companies with 500–1000 employees often use semi-annual cycles to keep pace with market developments.
Who Manages the Process?
- Nearly half (47%) of salary rounds are led by HR; larger firms have specialized rewards teams.
- In smaller companies, founders or managers often make decisions directly.
- The most effective processes involve both Finance and HR: financial discipline meets employee focus, resulting in better outcomes.
Goals of Salary Reviews
- Motivation and strategy vary: 31% of companies aim to increase productivity, 31% to boost employee satisfaction, and 19% to reduce turnover.
- Small companies emphasize culture and retention, while large firms focus on efficiency and cost control.
Tools – Excel still dominates
- 54% of companies still rely on Excel, with specialized tools becoming more common only in organizations with 500+ employees.
- Particularly successful companies are twice as likely to use software solutions – indicating that modern tools can significantly improve quality.
Performance & Fairness – A Balancing Act
- Most companies take a comprehensive approach to compensation review. 86% consider adjustments; market alignment and promotions are common.
- Only half address issues like correcting outliers and pay gaps.
- This suggests that rewarding performance often takes priority over ensuring fair and consistent pay.
Communication – The Biggest Weak Spot
- 69% rate their managers only 1–3 out of 5 when it comes to communicating and explaining salary decisions.
- Employee communication is also generally considered insufficient.
- Successful companies show that good preparation and transparent explanations are crucial for trust and acceptance.
The Sweet Spot – 500–1000 Employees
- Interestingly, companies of this size perform particularly well. They use software, update market data regularly, and structure processes without falling into bureaucratic traps.
Conclusion
Salary reviews remain a complex balancing act between fairness, transparency, and economic constraints. There is no single recipe for success, but high-performing companies share some clear factors:
- Collaboration instead of top-down control: HR and Finance plan budgets together.
- Investment in managerial competence: Training and clear guidelines improve quality.
- Greater transparency: Decisions should be communicated in a clear and understandable way.
- Use of modern tools: Move away from Excel toward integrated solutions.
Salary reviews will never be completely stress-free – but by focusing on transparency, collaboration, and systematics, they can become a true lever for employee retention and business success.
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