Annual pay reviews

Pay reviews are an inevitable part of the business year, but even seasoned managers can find them a challenge. And how do you cope when you simply haven't got the money to pay for the rises that your employees want? Kat Knight asks the difficult questions
If the wages you pay are competitive and you have policies and procedures already in place relating to pay and performance appraisals, annual salary reviews will be much easier.

"Individual pay reviews should be partly related to individual objectives, which can only be set if you have a proper review policy in place and carry out regular employee appraisals," says Jan Scrine of mediation and HR services provider The Minerva Partnership. "You can then state in your pay policy that part of the review process is based on whether individuals have met or exceeded their objectives."

Relating your decisions to performance will help you to justify rewarding employees whom you feel have made a greater contribution to your business.

"Be very clear at the outset why pay increases have been given," advises Scrine. "Your reasons must be transparent and there must be evidence for your decisions." This will protect you from potential claims of favouritism or discrimination.

When formalising your pay policy, think about your objectives. "What do you want to achieve?" asks Scrine. "Do you want to make a firm commitment to increasing deserving employees' salary when possible, or, if you think it's more necessary to put money back into your business, how will employees react?"

Remember, wages are an emotive subject. You might make your employees disillusioned if you choose to purchase new machinery or a company car rather than giving pay increases. Be careful and tactful, but above all - be honest.

Inevitably, your ability to offer pay increases will be linked to your firm's financial performance. "If the finances are simply not there," Scrine says, "be honest from the outset and tell your employees. Honesty is always the best policy."

If you cannot offer pay rises to employees who you feel genuinely deserve them, try to find other alternative ways of rewarding them, for example, extra paid holiday or an occasional cash bonus.

Let your employees state their case and listen to what they have to say. If you agree with them, but can't afford to increase their salary, make a firm commitment to reassess the situation at an agreed time in the near future.

If you disagree, make sure you explain why. "Always relate decisions back to the facts," Scrine stresses, "whether these are an individual's failure to meet objectives or proof the wages you pay match the going rate."