Conducting a pay review in a small business

Mar 23, 2015 | Terms and Conditions

In some small businesses there are no formal organisation-wide pay reviews, and pay rises are awarded on an individually-negotiated basis, either in response to a request from the employee or other factors. However we do recommend pay reviews are conducted across the whole business at the same time, usually annually. This reduces the likelihood of unfairness creeping in, resentment from employees and staff being demotivated. Conducting an annual review of pay doesn’t mean being obliged to increase pay annually, but it means that employees all know their pay will be looked at once a year, and an increase considered.
There are a number of broad steps to conducting a pay review in a small business as follows:

Decide on a budget and on objectives

Is the objective to reflect cost of living, reward outstanding performance, ensure salaries are at a certain point in relation to competitors, or something else? What budget do you need to achieve your objective, and is this budget available to you? If not, and if there are significant financial restraints, consider what is achievable within the budget realistically available to you.

Get the information you need

To conduct a successful pay review you need a number of pieces of information:

  • Contractual requirements. Are any employees entitled to any kind of pay rise for any reason, in line with their contracts or other factors? Take those into consideration when budgeting.
  • Performance data (organisational or individual). If you operate any kind of bonus system or performance related pay clearly you will need this, but you should gather it anyway as it will help ensure decisions about pay are fair and justifiable.
  • Market rates. This is relevant particularly if one of the objectives of your review is to ensure you are placed where you want to be in the range of salaries paid in your sector, but it is useful contextual and negotiating information in any case.
  • Financial projections. This is clearly related to budget, but you need your budget to be based on financial projections incorporating proposed salary increases, and not forgetting the impact on (for example) the holiday pay, overtime pay, maternity pay and sick pay budgets.

Involve line managers

Consult managers and other relevant individuals on proposed budget and process. Line managers are likely to be proposing salaries for their team members. Do they understand their remit and the restrictions and other factors involved? Have they been briefed on the process and on the timescales involved?

Moderation and approval

You will have some process whereby approval is needed from someone in order to implement salary increases, but you should also consider a moderation process with a small team of senior managers.
Some line managers may be more generous than others, or assess performance more favourably, but pay rises need to be fair and equitable across the whole organisation, so having a group of managers discuss proposed pay rises together before approval is granted will help avoid discrepancies.


Once approval has been granted, you need to ensure employees are written to confirming their new salary, and that the necessary changes to payroll information are processed. If the process has meant that decisions have not been made in time to process changes by the date they are effective, this may involve an element of back pay.


Once the process is complete, look back at what happened. Did the process go smoothly? Have the objectives you set initially been achieved? Did you stick to your budget? Are employees generally happy or have you had mutterings, appeals or even grievances? Consider how the process could be improved next time.
If you need help conducting a pay review, do get in touch.