Salary review

A salary review is a periodic evaluation of employee pay that compares performance, market benchmarks, and budget to decide adjustments, promotions, or re-banding. It is one of the most important HR processes for retaining talent and maintaining fair, competitive compensation.

Salary reviews typically happen annually, though some companies run semi-annual cycles or schedule reviews at the six-month mark for new hires and recently promoted employees.

What is a salary review?

A salary review is a structured HR process in which an employer evaluates individual or group compensation against job performance, internal salary bands, and external market data to determine if and how pay should change. Reviews typically consider performance ratings, role scope changes, tenure, market pay percentiles, and the company's compensation philosophy and budget.

For global employers, salary reviews also account for local market norms, statutory requirements, and currency or cost-of-living differences. Deel's approach emphasizes making salary reviews transparent, repeatable, and compliant across jurisdictions — using centralized compensation management workflows, documented salary bands, and market insights to scale consistent decisions for distributed teams.

Why salary reviews matter

• Retention: Fair, data-driven pay reviews reduce voluntary turnover. Employees who feel underpaid relative to the market are more likely to leave.
• Internal equity: Regular reviews surface pay gaps between employees in similar roles, helping prevent inequities that erode trust and create legal risk.
• Recruitment competitiveness: Companies that benchmark and adjust pay attract stronger candidates because their offers reflect current market rates.
• Legal compliance: In some jurisdictions, pay transparency and equity laws require documented pay practices. A structured review process creates an auditable record.
• Budget discipline: Reviews force a structured conversation between HR, finance, and leadership about how compensation dollars are allocated.

When to run salary reviews

• Annual reviews (most common). Typically aligned with the fiscal year or performance review cycle. One comprehensive review per year balances thoroughness with administrative effort.
• Semi-annual reviews. Used by fast-growing companies or in competitive talent markets where annual reviews may not keep pace with market shifts.
• Six-month reviews for new hires and promotions. A check-in at the six-month mark confirms whether starting pay is appropriate based on early performance and role fit.
• Off-cycle adjustments. Triggered by market shifts, retention risks, role changes, or equity concerns. These should follow the same data and documentation standards as scheduled reviews.

How to run a salary review

1. Collect data. Gather performance ratings, market benchmarking data (median, 25th, and 75th percentile for each role), internal salary band information, and budget constraints. Use tools like Deel Salary Insights for market benchmarks.
2. Evaluate and recommend. Compare each employee's current pay to their performance, market position, and internal peers. Flag employees who are significantly below market, above band, or whose role scope has changed. Prepare a recommended adjustment — merit increase, promotion, bonus, rebanding, or no change with a development plan.
3. Get approval. Present recommendations to leadership or a compensation committee with supporting data. Include the total budget impact and any equity or compliance considerations.
4. Document the decision. Record the rationale for each adjustment — data sources, performance evidence, and the decision outcome. Store documentation for auditability and future reference.
5. Update payroll. Apply approved changes in the payroll system. For global teams, ensure adjustments account for local tax implications, benefits changes, and currency considerations.
6. Communicate with the employee. Schedule a one-on-one meeting to explain the outcome. Be transparent about the factors considered, the data used, and what the employee can do to influence future reviews. Provide written confirmation of any pay change.

What to include in a salary review

• Market data source: Which benchmarking data was used and how it was applied (percentile targets, geographic adjustments).
• Performance evidence: Ratings, feedback, KPIs, or goal completion that support the recommendation.
• Internal equity check: How the employee's pay compares to peers in similar roles, levels, and locations.
• Decision rationale: A clear explanation of why the recommended outcome was chosen.
• Budget impact: The cost of the adjustment and how it fits within the approved compensation budget.
• Communication plan: When and how the employee will be informed, and what follow-up is needed.

Manager script for salary review conversations

Opening: "I want to walk you through your salary review. I've looked at your performance, how your pay compares to market data, and our internal bands."

Sharing the outcome: "Based on [performance evidence] and [market data], I'm recommending [specific change — e.g., a 7% increase effective next month]. Here's how we arrived at that number."

If no change: "Your pay is currently within our target range for your role and market. Here's what would position you for an adjustment in the next cycle — [specific goals or development areas]."

Closing: "Do you have questions about the data or the process? I'll send you written confirmation of [the change / the review outcome] this week."

Global considerations

• Local market norms: Pay expectations and competitive benchmarks vary significantly by country. A salary that is competitive in one market may be below standard in another.
• Statutory requirements: Some countries mandate minimum pay increases, cost-of-living adjustments, or pay transparency disclosures. Always check local labor law before finalizing adjustments.
• Tax and benefits impact: A gross pay increase affects net pay differently depending on the jurisdiction's tax rates, social contributions, and benefits structure. Model the net impact before communicating changes.
• Currency and cost of living: For companies paying in local currencies, exchange rate fluctuations can affect purchasing power. Some companies offer periodic cost-of-living reviews in addition to performance-based adjustments.

For multi-country salary reviews, Deel's compensation management tools centralize benchmarking, approval workflows, and payroll updates across jurisdictions.

Key facts

• Typical frequencies: Annual (most common), semi-annual, or six-month reviews for new hires and promotions.
• Primary inputs: Performance data, market benchmarks (25th/50th/75th percentiles), internal equity, and budget constraints.
• Common outcomes: Merit increase, promotion, one-time bonus, no change with a development plan, or rebanding.
• Global complexity: Local laws, payroll taxes, and benefits can change the net impact of adjustments. Localize every decision.
• Documentation required: Decision rationale, updated compensation records, and communication notes for transparency and auditability.

Example

A mid-size SaaS company conducts annual salary reviews in Q1. An account manager with excellent performance and increased territory scope is recommended for a 7% adjustment after HR confirms market data and internal banding. The manager documents the rationale, updates the payroll record in Deel, and schedules a one-on-one to communicate the change and discuss goals for the next review cycle.

FAQ

What is a salary review? A salary review evaluates whether an employee's pay should change based on performance, market benchmarks, and budget, typically during scheduled pay cycles.

How often should companies conduct salary reviews? Most companies run annual reviews. Some use semi-annual cycles, and many schedule a six-month review for new hires and recently promoted employees.

How do you give an employee a salary review? Prepare by collecting performance evidence and market data, align with internal bands, document the recommendation, get approval, and communicate outcomes transparently in a one-on-one meeting.

What should HR include in a salary review? Market data source, internal equity checks, the decision rationale, budget impact, and a communication plan for sharing the outcome with the employee.

What are common outcomes of a salary review? Merit increase, promotion with a pay adjustment, one-time bonus, rebanding to a new salary range, or no change accompanied by a development plan for the next cycle.