Managing the Annual Salary Review (ASR)

Set the ASR budget provision

How much money needs be set aside in the financial budget for the coming annual salary review? When setting your budget, take into account external factors such as key economic indicators and predicted movements in pay levels and pay progression. Consider relevant internal factors too – such as your company’s stated pay position, affordability of your proposals and any specific pay pressures in your market.

Review reward principles

Once you’ve set aside the money, it’s time to review existing reward principles. Are they still relevant and aligned to your organisation’s stated goals? Establish agreement on key principles, for example adopting a target market position for base pay and total cash. Be specific about the reward principles that apply to a range of scenarios – including pay adjustments such as merit awards and promotions – so your overall approach is consistent.

Analyse market pay data

Reference to external market data is critical to the credibility of your ASR. Before starting your analysis, make sure your internal pay data is accurate and takes account of promotions and other job changes. Then select relevant and reliable sources for your industry sector from the many pay surveys available. Establish a checklist for your survey sources so you can assess, for example, how effectively each survey’s benchmark jobs match up with those in your own organisation. And do bear in mind that pay data should never be more than 12 months old, and If it is six months or older it needs to be ‘aged’ to reflect the time lag.

Gain ASR budget approval

Your market pay analysis provides the hard evidence for costing the actual budget requirements for the ASR. Typically, where you have pay structures or individual pay ranges, the budget will be based on getting people to the market pay median. Individual performance is increasingly used across business sectors to manage pay progression, and needs to be factored into the ASR budget. And, with fewer organisations offering ‘cost of living’ awards, performance or merit based increases may be the sole basis of the ASR.

Set the ASR timetable

Making sure the ratings from performance and development reviews are available by the time your ASR timetable starts. This is essential for the 75 per cent of organisations that use performance related pay. And for other organisations this information completes the previous year’s review and helps you set this year’s goals and objectives.

Give front-line managers plenty of prior notice of ASR deadlines. If your organisation operates internationally, with cross-country reporting lines, this will affect your ASR timescales. And if you have a recognised consultation process involving, for example, trades unions or works councils, remember to factor this into the timetable too.

Support front-line managers

Do front-line managers fully understand their role in the ASR process? It’s well worth taking time to support and train them so that they know how to determine the pay of individuals and teams on the basis of established reward principles. Training would typically include guidelines on determining pay positions against agreed targets. And where merit or performance related pay is used, provide managers with tools for determining an individual’s pay position based on performance and market position.

Fine-tune the process

It’s a testing business coming up with pay recommendations that are aligned with your organisation’s culture, values and pay structures and also take account of external competitiveness. So challenge and test your ASR recommendations. They will drive pay distribution and ultimately impact on people’s individual pay and their perceptions of the process.

Communicate the ASR

All too often employees get a letter informing them of their new pay award, but no explanation of how it’s been arrived at. Hardly surprising, then, that employees often do not understand how their pay has been determined – with adverse effects on motivation and performance. So ensure that front-line managers are able to explain how and why individual pay decisions have been arrived at. Where there is a performance related element, this is especially important.

Inform payroll

Finally, inform payroll to ensure ASR changes are processed in time for the date on which employees receive their new salaries. And make sure the changes are correctly implemented.

Please note: this information is provided as general guidance only. If you need specific advice relating to your requirements, please contact us on +44 (0) 1367 710 618.