Mar 11, 2011



Pay reviews are a major means of implementing the organization's reward policies for improving performance and ensuring the continued motivation and retention of employees. They are also the manifestation to employees of these reward policies.

It is important, therefore, that the way in which reviews are conducted and the outcome for employees reflect these policies and the organization's culture. So far as employees are concerned, the review should, within reason, meet the expectations the organization has created among them as to how they will be rewarded in relation to their performance and contribution. However, the extent to which this can be achieved in practice may be limited by budgetary constraints on the amount of money available for pay increases, which will ultimately be derived from the business performance of the organization, or, in the public sector, government guidelines on pay increases. The review policy and practice will also be affected if pay is negotiated with trade unions.

When planning and conducting a pay review, consideration should be given to the need to:
  • provide general 'across-the-board increases' in response to market trends, increases in the cost of living or negotiated pay settlements;
  • conduct a review of the pay structure to reflect the need to respond to external pay market forces or to change differentials;
  • provide individuals with performance-related pay increases;
  • deal with increases in market rates affecting particular occupations or job families.

An Integrated Approach

We discuss these aspects of the review separately in the next four sections of this chapter. But this does not imply that they should necessarily be treated as discrete activities. There is an increasing tendency for organizations to relate pay increases entirely to the combined impact of individual performance and any changes in the individual's market worth (sometimes called performance-only or merit-only increases). Market worth is affected by movements in the market rate applicable to the individual's job and by the fact that the value of individuals to other organizations will increase as they gain experience and achieve higher levels of performance and competence.

An integrated approach means typically that there are no general increases, either for market rate movements or for increases in the cost of living. Everything is done on an individual basis. Clearly, this is more appropriate where the type or level of jobs and the culture of the organization are in accord with the concept of individual contracts and, therefore, pay reviews. An integrated approach may be adopted for senior or highly specialized roles where performance is very much related to individual abilities and competence and more account has to be taken of market forces. It may also be appropriate in smaller and rapidly growing organizations that rely on individual endeavour and contribution. But many larger and more bureaucratic organizations are adopting this approach because it does provide them with greater flexibility in targeting pay increases where they are most likely to produce a marked impact on organizational performance.


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