Planning for the salary review

The salary review is a strategic tool to motivate employees and promote competency development. The process involves a review of employees' salaries, with the possibility of increasing or maintaining existing salary levels. The aim of the salary review is to help the company achieve its business goals while fostering a motivated and engaged workforce. Simultaneously, it ensures that salary costs align with the company's financial capabilities.

There is no law requiring employers to raise salaries annually; this is usually regulated in collective agreements. Even though employers without collective agreements are not legally bound to conduct annual salary reviews, it is still a common practice to maintain staff motivation and competitiveness in the job market.

Salary review for companies with collective agreements

For companies bound by collective agreements, the salary review is regulated according to the agreement. It specifies which employees are covered, time frames, salary increases, and any guarantees regarding each employee's entitlement to a specific salary increase, known as individual guarantee. Central collective agreements provide guidelines for salary setting and the salary framework.

Salary review for companies without collective agreements

Employers without collective agreements have more freedom to design their salary review process. In this case, it is the employer's responsibility to agree with the employee on when the salary will be reviewed, which should be documented in the employment contract and the company's policy.

Step-by-step guide to the salary review

There are many steps to consider when it comes to salary reviews, and preparations should begin well in advance of the potential new salary payment, preferably several months ahead.

Preparations and set your goals

Some points to consider before your salary review are:

• Analyze the salary structure: Use the salary review as a tool to discover incorrect salary structures. Examine overall operations and also break down data by departments and gender. Identify areas where salary levels may impact recruitment.
• Choose tools wisely: Relying on HR systems or other support systems? Ensure that those involved have the right access to information shared during a salary review and that it is protected according to GDPR. This often involves sensitive information.
• Evaluate the economy: Review the company's financial position and determine how much room there is for salary adjustments. This includes analyzing the company's performance, budget, and future prospects.
• Define the purpose of the salary review: What is the goal of the revision? Is it to reward performance, maintain competitive salaries, or manage salary costs?

Calculate the salary framework  

The salary framework, or salary pool, is the total amount of money the company allocates for salary increases. In union negotiations, the floor, i. e., the minimum level, for the salary pool can be set, for example, at 3%. This percentage represents the portion of the monthly salary that each employee contributes to the common salary pool. The collective agreement specifies the date for calculating the salary framework. This means that everyone employed indefinitely at that date contributes to the salary pool.

Steps in the salary review process

1. Information to salary-setting managers and employees

Ensure that salary-setting managers are familiar with how a salary discussion with their employees should proceed. This includes information such as salary policy, salary criteria, and any supporting material. When a salary review process is transparent, employees perceive it as positive. Ensure that employees are also aware of the company's salary policy, criteria, and timeframes. Salary review is part of the HR cycle, so consider the flow of activities like development discussions, follow-up discussions for previously set goals when planning the salary review.

2. Salary discussions with employees

Before the salary review, employers should offer their employees a salary discussion with their salary-setting manager. During the salary discussion, the employee has the opportunity to:

• Receive an explanation of their current salary.
• Get information on what they can do to influence their future salary.
• Have the opportunity to provide input on their own salary development.

This discussion does not make any new decisions about the salary.

3. Salary proposals

Salary-setting managers distribute the salary budget among their employees, considering any minimum salaries and individual guarantees. Information such as salary levels in relation to the market and internal positions, as well as performance, can provide a good basis for salary proposals. Depending on the company's size and organizational structure, there may be more senior managers who need to approve new salary proposals before they are presented further. In some cases, the company's HR department also analyzes the salary proposals to ensure that salary setting complies with guidelines and stays within the salary budget.

4. Union negotiations for companies with collective agreements

Before the new salaries are paid out, reconciliations are conducted with union organizations. The new salaries should not be communicated to employees until negotiations are completed.

5. Inform employees about salaries

When union negotiations are complete, employees should be informed about their new salaries and from which date the new salaries apply. According to the new LAS (Employment Protection Act), new salaries need to be communicated in writing. If the company has an HR system, it is considered sufficient for employees to receive information about their new salary via the HR system, where they can log in and see their new salary.

A good tip is to conclude the salary review process with an evaluation. How did managers and employees experience the process? What can be done better for the next year?

The salary review is an essential process that requires planning and strategic thinking. By following these steps, companies can ensure a fair and transparent salary review that benefits both employees and the company as a whole. If the process feels overwhelming, there is help available. At Azets, for example, we can assist you with advice, extract information from the salary system, and ensure that your salary policy is up to date. Feel free to contact us at hrsupport.se@azets.com.