Wages 101: How to set, benchmark and review salaries

Payroll is often the biggest cost of doing business but not paying fairly can mean that the books are hit in other ways. Whilst pay is not an exact science, setting and reviewing a salary doesn’t have to feel like an algebra test. This guide will equip you with the tools you need to make informed salary-related decisions.

Setting a salary

1. Write a detailed position description

   Ensure you’re clear on why you need the role, what duties the role will encompass and what you need in a person to do the role well. Future proof yourself and consider things like scalability, role longevity and how a person in this role can develop their career over the years.

2. Complete a benchmark analysis

   Many recruitment agencies publish free salary guides which include data by industry, role and location. Refer to the ‘benchmarking’ section below for further information.

3. Determine your range

   Any role will attract a range of candidates with varying levels of suitability. Determine a range you are willing and able to pay — the bare minimum to the maximum you can afford.

4. Post-offer negotiations

   Make an offer to a candidate that’s within this range and be prepared to negotiate.

Benchmarking

Pay and benefits are relative to each market and therefore different. For example, the cost of living, expected benefits or talent pool will impact the rate a role will command in different locations and industries.

Below is an example of salary guide for customer service positions based in Melbourne.

Source: 2021 Robert Half Salary Guide

Most guides break down pay rates into percentiles to account for differences in a candidate’s level of experience and skills, qualifications, demand for the role, and the size and complexity of the company that’s hiring.

Salary percentiles. Source: supplied.

The 25th percentile is typically offered to those new to the role. The 50th percentile represents the midpoint salary and is offer point for many companies. The 95th percentile is typically reserved for in-demand candidates who are very difficult to find.

Note that any benchmarking data is only as good as the data available, and no single tool or information source is 100% conclusive. Where data is not available for a role in a market, seek other sources from local job boards or external agency input.

Reviewing a salary

Whether it’s an increase request received from an employee, or an increase offered by the company, the below should be taken into consideration before making an appropriate recommendation:

1. The reason for the change e.g. a change in responsibility, a promotion or a response to market pressures

2. Benchmarking data (using a current position description) and the proposed new salary amount

3. Pay equity and whether a change in salary for one role kickstarts a review of other roles (the same or different)

4. Company performance, affordability and if it’s budgeted or not

5. The criticality of the role and the person in the role

6. The impact and associated risks (financial/commercial/people/other) if the salary change is not actioned

7. Total rewards and other benefits the person in this role receives

8. Time in role, experience, skill and individual performance

9. Details of pay history and time since last pay rise

Talking about salary

Effective communication accounts for more than 60% of employees’ fair pay perceptions. Focusing on the basics can help to avoid a potentially difficult and emotional conversation:

Do:

• Engage in regular career conversations
• Set goals with your staff
• Foster an understanding of ‘total reward’
• Explain the ‘what, why, and what’s next’
• Deliver on what you say you will

Don’t:

• Promise a promotion
• Promise a salary increase
• Communicate a set timeline
• Share benchmarking data
• Share other’s salary information

Case study

Here is a common scenario you may encounter and a guide on how you can respond. The scenario assumes a benchmark analysis has been performed, they are already paid at a fair rate and you are unable to offer an increase (even if it’s less than what they are asking for).

“I can make more money working at [competitor]”

Situation: Javier is unhappy with his current salary but doesn’t want to leave your company.

Response: Thank you for trusting me with your concerns. We’ve completed a benchmarking analysis and based on the data, your current salary is aligned with what the market is paying. As such, I’m unable to offer an increase right now.

We do everything we can to ensure that we’re competitive with what other companies are paying for similar roles. Pay is not an exact science and variations in pay outside of [your company] are dependent on many things. Unfortunately, a singular data point such as a job title, is not an accurate representation of the market.

I understand this is disappointing news and whilst I can’t make any promises, I am committed to helping you feel valued. [Insert alternative actions you’re able to offer, such as a salary review in six months’ time or other benefits].