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The Effects of Salary Review on Employee Retention for Tech Specialists

Your salary is important, right? Most people would agree that salary is one of the most important -if not the most important- factor when applying for a job. A good salary is often associated with a good job, which brings status, satisfaction, a general sense of wellbeing, etc.

Conversely, it's incumbent on a company to offer a salary that is competitive, relevant to the job, and also reflective of the employee's level of experience and education at that point in their career.

But what about employee retention? A salary might be fair (good, even) at the start of the job. But the employee's career grows and progresses, and as the experience increases, so does the person's monetary value as an asset for the company. A salary review might be due, maybe one or two years down the line (though in the IT industry, it tends to happen either yearly, or twice-yearly). This is usually a point of inflection in someone's career. If the new salary doesn't match expectations, the company might have a problem on its hands, as the staff member might choose to walk. This issue applies particularly to tech specialists, for several reasons, which we will discuss later in this piece.

This article explores the concept of salary reviews, and how they affect staff retention, putting special emphasis on the IT field.

Salary review: a brief explanation

The concept of salary review is straightforward enough. It's the process of reviewing staff remuneration at certain points in their stay with the company, to determine whether or not the pay package is fair, and in line with factors such as experience, market trends, company culture, job performance, etc.

It is an official process that involves HR, management, and the employee, of course. Normally, one or more of these stakeholders will meet and discuss milestones, achievements, job strategy going forward, the overall market situation, and other issues that will help determine whether or not the staff member is compensated fairly, or undercompensated, as the case might be. The outcome of a salary review meeting can become a turning point in someone's career.

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The importance of staff retention in the IT industry

The IT industry will be worth an estimated $9,325bn in 2022. Such financial stakes tend to attract highly skilled professionals, who want to be paid accordingly.

Over the past years, there has been a marked shortage of IT specialists worldwide. Companies across the board struggle to find and hire the specialists they need. And this means that staff retention, particularly in this industry, becomes a high-stakes game.

IT specialists, including software developers, are well aware that they're in high demand. They know that if they walk out of a job, they can walk into a new one with ease. This empowers them to request higher wages, and often forces the company's hand.

From the company's perspective, it's easy to see why staff retention is crucial. They have probably invested big money in their staff, in the project, and losing key employees could have a devastating impact. Sometimes, one or two employees hold all the IT knowledge of an entire company. If they walk out, the entire system could collapse.

To prevent this disastrous scenario, companies must invest and engage in staff retention strategies. An adequate salary (more than adequate, perhaps) will help, but money is not the only thing keeping an employee attached to their job. Company events, learning programs, perks, and other factors also come into play.

Salary growth

It is only fair that, as an employee's career progresses, so does their remuneration. This depends on performance, milestones, achievements, etc., assuming that there is a positive progression, the salary grows accordingly. But often, personal biases, external factors, and other issues might play against the individual when a salary increase is due.

Nevertheless, and taking software developers in the CEE Region as an example, there has been a significant median salary increase over the past 10 years. In 2012, a Systems Architect would earn an average of $3,000 a month. In 2022, that amount has increased to $6,200, that is a massive 106% increase!

Salary growth from 2012 to 2022

The role of key business stakeholders in adding extra value to a salary review cycle

Salary reviews usually involve several business stakeholders. The employees' direct supervisor, HR, and maybe project managers with whom the employee or the team might have collaborated over the last few quarters. Going forward, it makes sense for these stakeholders to define a clear strategy to adjust salaries, benefits, etc. as the business evolves. This will add value to the process.

  • One-to-one talk between decision-maker and employee - This is incredibly important to maintain the transparency and fairness of the entire process.
  • Goals definition - There's a certain ebb and flow to any business, and market circumstances do change sometimes according to external factors. These factors may or may not affect the salary review, but business stakeholders should always define clear goals and set the expectations for employees due for review.
  • Employee involvement - A salary review obviously involves the employees. But as business stakeholders, you should ensure that the staff member gives you feedback about the entire process, before and after the review. This will help you gauge their frame of mind, overall opinion, and their level of satisfaction.
  • Regular analysis of salaries in competitors' companies - IT specialists tend to enjoy freedom of movement when it comes to jobs. Hence it is of crucial importance that businesses keep a constant eye on rival companies to ensure salaries remain competitive.
  • Salary review methodology aligned with the company's overall mission and values - Every business is unique in its own way, and the salary review process should be aligned with the organization's core values, objectives, and more importantly, budget.
  • Link salary increases to well-defined KPIs and/or performance indexes - Objectivity should be the name of the game when it comes to appreciating an employee's performance (or lack of it). By linking salary decisions to well-defined KPIs and other performance indicators, any subjectiveness or personal biases are removed.
  • Clear and consistent review process - Long-standing employees should know what to expect when salary review time comes around. It's not a good idea to conduct 'improvised' salary reviews, as this might lead to confusion or even suspicion on the employees' part.
  • Pension, bonuses, and other financial incentives - An employee's take-home pay is usually more than their salary slip at the end of every month. Pension pots, performance bonuses, ex gratia payments, etc. are also part of the overall compensation package.

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