What is a salary review? A comprehensive guide to conducting an effective salary review

Salary review plays an important role in ensuring fairness and motivating employees in every business. This process not only affects employee satisfaction but also directly impacts the performance and development of the organization. However, not all businesses clearly understand and effectively apply the salary review process. In this article, 1C Vietnam will guide businesses on how to conduct effective and transparent salary reviews.

1. What is salary review?

Salary review is the process of evaluating, reviewing and adjusting employee salaries based on various factors. This is an essential activity in modern human resource management, helping businesses maintain competitiveness in the labor market and motivate employees.

From a business perspective, salary review is a tool to:

• Ensure fair and transparent compensation policies
• Stay competitive in the labor market
• Retain talent and reduce turnover
• Create motivation and improve productivity

From an employee perspective, a salary review is an opportunity to:

• Recognized for individual contributions and achievements
• Adjust income to match value delivered
• Better understanding of assessment criteria and job requirements

Salary reviews can be divided into two main types:

• Periodic salary review : Conducted at fixed intervals (quarterly, semi-annually, annually)
• Performance-based salary review : Conducted when an employee achieves exceptional performance or completes an important goal.

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2. When should salary review be conducted?

The right time to review salary will help the process go smoothly and achieve optimal results.

Determining the right time to review salary is an important factor to help businesses optimize human resources processes and ensure fairness. Below are the ideal times to conduct salary reviews:

Ideal time to conduct salary review:

• Annually : Many businesses choose the end of the fiscal year or the beginning of the new year to conduct a comprehensive salary review.
• After the completion of a major project : This is a good time to evaluate individual contributions.
• When employees change job roles : Promotions and expanded responsibilities come with a pay review.
• After the probationary period : Time to evaluate initial performance and consider salary adjustments

Signs you need to reconsider your salary:

• Employee demonstrates performance that exceeds original job description
• There are signs that employees are not satisfied with their current salary.
• The salary in the labor market for the same position increased significantly.
• High inflation rates reduce the real value of current wages.
• The business significantly improved in revenue and profit

Determining the right time to review salary is the first step towards an effective salary review and adjustment process, ensuring that both the business and employees are ready to participate in this process seriously.

3. Effective salary review process

To conduct an effective salary review, a business needs to follow a clearly structured process. Here are the steps to follow:

Step 1: Prepare before the salary review

• Collect and analyze data on employee performance
• Find out and stay updated on market salary levels for similar positions
• Determine the budget that can be allocated for salary increases
• Establish clear and consistent evaluation criteria

Step 2: Analyze roles and responsibilities

• Assess the complexity and importance of the job position
• Review changes in the scope of work since the last review
• Compare actual responsibilities with original job description
• Recognize new skills and additional competencies of employees

Step 3: Evaluate work performance

• Review performance evaluation reports for the period
• Consult with your direct manager and colleagues
• Evaluate the completion of KPIs and OKRs
• Consider outstanding contributions and individual initiatives

Step 4: Compare with market standards

• Consult salary reports from reliable sources.
• Compare with industry and regional average salaries
• Consider other benefits and compensation beyond salary

Step 5: Determine the appropriate salary increase

• Based on performance evaluation and market comparison
• Consider inflation and cost of living
• Consider your business budget
• Ensure internal equity among employees

Step 6: Discuss transparently with employees

• Organize private and professional meetings
• Clearly present assessment results and decisions
• Listen to employee feedback
• Provide a development roadmap and goals for the next review period

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4. Factors affecting salary increase decisions

Many different factors influence salary increase decisions, from internal company factors to the macro-economic environment.

The decision to increase salary is not based on a single factor but a combination of many different factors. Understanding these factors will help both businesses and employees have a more comprehensive view in the salary review process.

4.1 Internal factors

• Personal performance : This is the most important factor, assessing the level of work completion, quality and quantity of output.
• Skills and Competencies : Professional qualifications, special skills and problem-solving abilities
• Seniority and experience : Time working at the company and accumulated experience in the industry
• Teamwork spirit : Ability to cooperate, support colleagues and contribute to corporate culture
• Company Budget : The financial situation and solvency of the business

4.2 External factors

• Market Salary : Average salary for similar position in industry and region
• Inflation Rate : The rate at which prices of goods and services increase affects the cost of living.
• Economic Situation : Economic Growth, Unemployment Rate and Labor Market Trends
• Legal regulations : Labor laws, minimum wages and tax regulations
• Competitive pressure : Competitors' salary policies in attracting talent

Table comparing the importance of internal and external factors:

During the salary review process, businesses need to consider both internal and external factors to make reasonable salary increase decisions, ensuring competitiveness in the labor market while being consistent with the company's financial situation.

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5. Secrets to successful salary negotiation

Effective salary negotiation skills can help both businesses and employees reach a satisfactory agreement.

Discussing a salary increase is a negotiation that requires careful preparation and effective communication skills. Here are some tips to help both parties reach a successful agreement during a salary review:

5.1 For employees

Effective communication skills when discussing a salary increase:

• Prepare thoroughly : List achievements, successful projects and specific contributions.
• Use data and numbers : Specific figures about performance, sales or cost savings
• Market Research : Find out the average salary for a similar position
• Set clear goals : Determine your desired salary and your minimum acceptable salary.
• Demonstrate professionalism : Maintain a positive and constructive attitude throughout the discussion.

Things to avoid when asking for a raise:

• Compare salaries with peers
• Make unreasonable demands relative to the market and performance
• Using emotions or pressure as a negotiating tool
• Threaten to quit if not given a raise
• Choosing the wrong time to discuss salary

5.2 For managers

Skills for Managing Salary Discussions:

• Active Listening : Create space for employees to express their views
• Process transparency : Clearly explain evaluation criteria and decision-making process
• Provide specific feedback : State the reasoning behind the salary decision.
• Suggested alternatives : If salary increase is not possible, consider other forms of compensation
• Development planning : Outline the path for employees to achieve their desired salary

Both businesses and employees need to remember that salary reviews are not just about money, but also an opportunity to evaluate performance, recognize contributions and plan for future development.

6. Salary review trends in Vietnam and abroad

Understanding international salary review trends helps Vietnamese businesses update and apply advanced methods.

Different countries have different salary review methods, suitable for their cultural and economic characteristics. Understanding and comparing these methods will help Vietnamese businesses learn and apply effective methods suitable for the domestic context.

Comparison table of salary review methods in different countries:

Notable global salary review trends:

• Salary Transparency : Many international companies are adopting salary transparency policies, publicly disclosing salary scales and evaluation criteria.
• Flexible salary review frequency : Instead of just annual salary review, many businesses are moving to a more flexible model.
• Using technology and data : Applying HR software and data analytics to make compensation decisions
• Coordinate compensation with non-financial benefits : Build a comprehensive compensation package that includes both salary and other benefits
• Employee Empowerment : Allow employees to participate in the process of developing evaluation criteria

Lessons for Vietnamese businesses:

• Need to shift from seniority-based salary review model to performance-based and value-based model
• Increase transparency in the salary review process
• Apply technology to collect and analyze performance data
• Build a culture of continuous feedback instead of just one review per year
• Design flexible compensation packages to suit the diverse needs of employees

7. FAQs – Frequently asked questions about salary review

7.1 Do all businesses have to conduct salary reviews?

There is no legal requirement for businesses to conduct regular salary reviews. However, it is a good HR practice to help maintain competitiveness and retain talent. Larger, more structured businesses typically have a formal salary review process, while smaller businesses may conduct it informally or infrequently.

7.2 Is salary review different from salary increase?

Yes, salary review and salary increase are two different concepts. Salary review is the process of evaluating, reviewing and adjusting salary based on many factors. The result of salary review can be a salary increase, maintaining the current salary, or in some special cases, it can be a salary decrease. Salary increase is just one of the possible results of the salary review process.

7.3 Which employees are usually given priority during salary reviews?

Typically, the following groups of employees are given priority during salary reviews:

• Employees with outstanding performance, exceeding expectations
• Employees in key positions or possess skills that are rare in the market
• Employees are paid significantly below market rates.
• Employees who have recently been promoted or have had their scope of responsibility expanded
• Potential employees are at risk of leaving if their salaries are not adjusted promptly.

7.4 What documents should businesses prepare for a salary review?

Documents to prepare include:

• Employee Performance Evaluation Report
• Market salary data for similar positions
• Information about the company's salary budget
• Employee salary and bonus history
• Job description and evaluation criteria

Salary review is a necessary process to maintain a healthy and effective relationship between the business and employees. By implementing a transparent, fair and data-driven salary review process, businesses can not only improve employee satisfaction but also enhance their ability to retain and attract talent. To be effective, salary review needs to be conducted at the right time, with a clear process and consider both internal and market factors. 1C Vietnam recommends that businesses should consider salary review not only as an administrative activity but also as an opportunity to recognize employee contributions and promote the development of the organization.

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