How to decide who gets a pay rise

When it comes to pay, perception is everything. According to Hays Salary Guide FY25/26, six in ten workers believe they’re underpaid, but salary satisfaction doesn’t always align with income. Some professionals earning an annual salary of $250k still feel underpaid, while others earning less than $50k report high satisfaction.

These figures highlight that salary satisfaction is subjective, so setting effective pay raises takes more than applying a flat percentage.

So, how can employers strike the right balance? Here's what to consider when reviewing pay.

8 key factors in determining salary increases

1. Consider each employee’s performance

Start with a clear assessment of each employee’s contribution to your organisation. Use their most recent performance review as a benchmark to assess the value they’ve added.

Key points to consider:

• Achievement of goals: Have they met or exceeded performance targets over the past year?
   
• Work quality and output: Assess both the volume and standard of work delivered.
   
• Initiative and leadership: Did they mentor others, take on extra responsibilities, or introduce new systems?
   
• Project delivery: Did they complete key projects ahead of deadlines or above expectations?
   
• Team contribution: Do they foster collaboration and positively influence colleagues?
   
• Knowledge sharing: Have they brought new insights or skills that benefited the wider team?
   
• Professional development: Have they shown growth, improved skills, or a commitment to learning?

These insights help you make transparent, performance-based salary decisions, recognising those who demonstrate long-term value and growth potential.

2. Weigh up your employees’ responsibilities

An employee’s job duties vary depending on their role but are usually defined in their job description.

• Job description: Revisit each employee’s job description to clarify their responsibilities and the complexity and scope of their role.
   
• Scope creep: Take inventory of any additional responsibilities that aren’t captured in these documents. Employees often assume more responsibility over time than their job description suggests. If their responsibilities justify a formal promotion, make it happen.
   
• Promotion potential: While promotions typically come with a pay increase, if your organisation isn’t in a financial position to offer a salary increase in line with their wider responsibilities, assure them that you will prioritise a greater salary increase as soon as you can.

3. Understand typical market rates for each employee’s role

Competitor’s typical salaries should also factor into your pay rise decisions. Employees expect fair pay for their skills and expertise, so make sure your compensation strategy aligns with those offered across your sector or industry. The cost of living is another reason for dissatisfaction and misalignment. Having insight into market data also strengthens your case for the salaries you set.

Not every employer will set salaries that match the averages, of course. The size of your organisation and the region in which you operate can play a part. That's why Hays Salary Guide FY25/26 includes a salary range - minimum to maximum - for every role, along with figures across various locations.

4. Evaluate your employees’ skills

Consider the value of an employee’s expertise, especially when those capabilities are essential across your workforce. Employees with specialised or high-demand skills often justify a higher salary than others in similar roles.

This includes not just technical skills, but increasingly, interpersonal and human skills. As per data from our salary guide:

• 82% of employers highlighted the need for people skills, such as communication, emotional intelligence, and collaboration.
• 73% cited the importance of flexibility and adapting to change and uncertainty.
• 59% pointed to the value of creativity, including critical thinking and problem-solving.

To make fair salary adjustments, clearly define which skills you value and how they’re measured, even for soft skills like those mentioned above. Set measurable criteria to assess performance and reward accordingly.

5. Consider the seniority of an employee’s role

Employees’ salaries often increase with seniority for various reasons. Senior employees typically offer a high level of specialty knowledge, commercial acumen, experience and leadership capability.

However, none of these attributes are inherent characteristics of seniority. So, when preparing for a senior employee's salary review, evaluate whether their seniority is indicative of other factors including:

• Breadth of experience
• Commercial acumen
• Specialist knowledge
• Leadership credentials
• Strong relationships and networks
• Industry insight

Likewise, some mid-level staff may be especially deserving of salary increases. Don’t underestimate their capabilities in areas senior staff are normally recognised for.

Remember, seniority can influence the salary hierarchy. However, it shouldn’t automatically mean a salary increase entitlement, particularly if an employee’s results and value don't amount to those ordinarily associated with seniority.

6. Length of service

High turnover is expensive. Each departure brings recruitment costs - from job ads to the time spent on interviews, onboarding, and training. In addition, new hires often need time to get to the same performance level as the employees they replace.

Employees who provide organisations with long service can add a lot of value through loyalty. So, ensuring your salaries are structured to encourage long service can be a big financial benefit for your organisation. It’s also an essential part of retaining top talent.

7. Skills gaps in your industry or sector

When determining the value of salary increases, consider the difficulty of attracting a new team member if this employee should resign. As per Hays Salary Guide FY25/26, 84% of organisations have experienced skills shortages in the past year.

If an in-demand employee leaves due to perceived low pay, the cost and time to replace and train someone new often outweighs the cost of offering a higher salary to retain them.

Minimising salary increases due to budget constraints is an easy cost-saving measure. However, it’s important to keep in mind that the money you invest into salary increases can drive savings and profits in other areas of your organisation.

8. Consider non-financial rewards

Ultimately, your salary increase budget can only stretch so far. Yes, ensuring competitive compensation is essential, however, employee satisfaction isn't just motivated by money.

Today, a competitive salary is just one way to reward exceptional performance. Employee benefits that contribute to employee motivation include:

• Flexible work environments
• Work-life balance
• Upskilling and training
• Mental health and wellness initiatives
• Career progression
• Additional annual leave
• Strong relationships between managers and teams

If salary increases aren’t feasible, offering worthwhile benefits could bridge the gap. Some companies offer as many as 25 different benefits, but the amount of people wanting the top two benefits was greater than the combined total of the bottom 20. For this reason, we recommend speaking directly with your team to identify which perks are most effective for retaining employees.

Communicate early

If your organisation noticed poor performance this year, flag this early with your employees. Let them know as soon as possible that the downturn in business might impact salary increases. Don’t wait until annual performance reviews to share these implications. Instead, make your rationale transparent to help temper expectations and minimise disappointment.

If your salaries are below the external typical value, it can impact employee retention and turnover. Hays Salary Guide FY25/26 is based on a survey of more than 12,000 organisations and skilled professionals. Access typical salary trends and insights relevant to your industry. Download your copy today.