How to Deal with Salary Reviews 💰
A detailed guide about a tricky, often overlooked topic.
Talking about money has always been one of the most challenging parts of my career as an engineering manager.
Namely, that includes three things:
Negotiating the yearly budget
Deciding how much to pay people
Regularly review compensations
In fact, if not handled well, these three processes can have an awful impact on your team's productivity, morale, retention, and of course, on your career.
So, while these activities are all connected one to another, in today’s article we will focus on compensation, and in particular on how to deal with salary reviews.
That’s because, despite its importance, in many engineering teams this topic is often still a taboo, or at least a very sensitive one. Conversely, in my experience, bringing transparency to salary discussions is incredibly helpful in fostering a positive and healthy work environment.
So, here is the agenda:
🙋♂️ What is a salary review
🔬 How to prepare for a salary review
🔧 How to perform a salary review
📚 How other companies do salary reviews
Let's dive in!
🙋♂️ What is a Salary Review?
A salary review is a structured process to evaluate and adjust employee compensation.
It has three main goals:
📈 Market alignment— ensuring that employee compensation is competitive with industry standards and market conditions.
🌟 Performance reward — recognizing and financially rewarding employees for their achievements, hard work, and contributions to the organization.
⚖️ Internal fairness — maintaining consistency in pay among team members to promote a sense of equity and prevent dissatisfaction.
The ownership of salary reviews can vary depending on the organization’s size, structure, and culture. However, let’s see what the typical stakeholders are, and what’s their role in the process:
1) Human Resources (HR) 🏢
Ownership — HR usually oversees the whole process. They establish guidelines, provide market salary data, and ensure the process aligns with company policies and legal requirements.
Coordination — HR coordinates with other departments to gather necessary data and ensure consistency in salary adjustments across the organization.
2) Engineering Managers and Team Leads 🧑💻
Implementation — EMs and team leads gather performance data, provide input on individual contributions, and make recommendations for salary adjustments.
Communication — EMs communicate the outcomes of the reviews to their team members, providing feedback, and addressing any concerns.
3) Senior Management and Executives 👑
Approval — senior management and execs often have the final approval on budget allocations for salary adjustments. They ensure that the salary review process aligns with the company's strategic goals and financial constraints.
Policy Setting — they may also set high-level policies for the process itself, such as target compensation percentiles and overall compensation strategy.
4) Finance 🏦
Budget Management — finally, the finance department ensures that the salary adjustments fit within the overall budget. They provide oversight and help balance the raises with other financial priorities.
🔬 How to prepare for salary reviews
You might think that a salary review is just a negotiation between you and your team members to decide if and how they should have their compensation increased.
Instead, there's a lot more to do.
Before you even start negotiating, there's a good amount of prep work that goes into it, which you can organize in three stages:
🔍 Market Research
📊 Performance Data Collection
🧮 Budget Planning
Let's see each of them in detail 👇