Why Should Salary Revision be a Consistent Process in an Organisation

Salary is a highly important component of the total compensation payable by us as employers to our employees. And thus, employers must have well-defined salary structures and mechanisms across all employees in the organisation. The presence of an optimal salary increment structure and timely reviews of it help companies reward deserving employees in a timely manner and also helps in keeping the human resource cost in control.

However, a mere review of salary levels is not enough. As an employer, we must provide salary increment according to the company situation and employee requirements, which can be in the form of a percentage increase of the employee’s base pay or one-time payments like a bonus. But why? Read on to understand how salary revision helps and why it should be a consistent process.

What does an employee expect from an organisation?

As employers, we need to understand that there are primarily two expectations that almost every employee has from their organisation. These two expectations are a good salary increment and recognition for work. An absence of either of these two can lead to employee dissatisfaction, leading to high employee turnover rates and high recruitment and talent replacement costs.

What is the difference between basic salary and gross salary?

The terms basic salary and gross salary are often used interchangeably but should not be as they denote different things. Here are the differences between these two terms.

The basic salary is a portion of the gross salary, also known as the “cost to company (CTC)”, which is fixed and is paid without any additional benefits or reductions.

When we add other direct benefits like dearness allowance (DA), medical allowance, conveyance allowance, house rent allowance (HRA) and other special allowances to the basic salary along with indirect benefits and savings contributions, we get the gross salary.

Examples of indirect benefits include food coupons, subsidised meals, interest-free loans, group term plans, company-provided accommodation, etc. Some common examples of employer savings contributions are those made towards the employee provident fund (EPF), gratuity, and super annuity benefit.

Why should companies provide salary increment?

The following are some of the key reasons why companies need to revise the salaries of their employee in a consistent manner.

To recruit and retain good talent

Employees are the most valuable resource for any organisation. And thus, every company wants to hire individuals who possess the appropriate experience and the required skill set. To achieve this, companies keep offering competitive salaries to potential candidates to attract them.

Due to this reason, it becomes necessary for us as employers to provide a salary increment to our current employees so that no other company can lobby them. Revisiting salary structures and revising them is equally important for open positions so that we do not lose any desirable candidates due to lower salaries.

To keep employees motivated

Monetary benefits form the primary essence of the total compensation received by employees. And being underpaid can be highly demotivating for an employee. It is often observed that the employees who are not satisfied with their compensation package are often reluctant to work as per the requirements of the company. Such employees are believed to underdeliver to match their underpaid salaries.

Frequent behaviours like these can take down the motivation level of all employees in the company, making it difficult for the managers to get the work done, which can adversely affect the company’s business performance.

Thus, as employers, we must be consistent with providing salary hikes to identify if any employee is underpaid and act accordingly to avoid any future issues.

For internal salary equity

In a bid to attract good candidates to the workforce, companies often offer a higher salary than what it is paying their current employees in a similar role. Incidents like these can disturb the internal salary equity in the organisation, leading to non-cooperation and conflicts between employees. This can also backfire in terms of demotivation of the current employees who had been loyal to the company for years but now feel neglected. This could probably lead to losing a valuable human resource by the company. Thus, to ensure salary parity and avoid such issues, we must consistently revise our employees’ salaries and provide them with the due pay raise.

To help them meet inflation

Having the ability to meet one’s day-to-day expenses is why anybody works. And due to the forces of demand and supply, various geopolitical events, outbreaks of healthcare hazards, etc., this ability to meet one’s daily expenditure can change. And thus, to ensure that our employees can earn a salary that helps them beat the ongoing rate of inflation and meet their financial requirements, as employers, we must provide them with hikes from time to time so that they don’t need to look for a job change.

How can employers know a pay revision is required?

Knowing the answer to this question is as important as knowing that we must provide salary hikes to our employees from time to time. We as employers can identify the need for a pay revision with the help of the following.

• Annual Compensation Reviews
• Manager’s Feedback
• Industry-Wide Salary Reports

Conclusion

Both monetary rewards and recognition for their work play an important role in shaping an employee’s well-being and outlook towards their job. And thus, to ensure that our employees are satisfied with their work, salary, and the company’s recognition of their efforts, we must conduct regular surveys with employees. This helps us identify their needs for a salary increment before it becomes too late.

By being consistent with our efforts for employee welfare, we can improve our employee retention rates and ensure that the work environment in the organisation is both collaborative and cordial.

This helps us reap the benefits of teamwork, higher motivation levels, and increased employee efficiency in terms of enhanced revenues and profit margins for the company.