It's often said that the winter is hard to get through. Facing the current harsh market environment, and looking at your KPI, are you troubled about how to plan employee salaries for the coming year? Today, we'll specifically discuss how to conduct annual salary adjustments scientifically? 1 Annual Salary Adjustment: What's the Most Reasonable Way to Adjust Salaries? For annual salary adjustments, there is generally a "systematic salary adjustment," which means updating the salary structure each year and then making corresponding salary adjustments. Additionally, from the perspective of reasons for adjustment, the two common types are "performance-based salary adjustment" and "promotion-based salary adjustment." Performance-based salary adjustment refers to adjusting salary based on employee performance without a change in position. However, an important step before this is to review the "person-job fit" issue. Many companies, not just startups, tend to determine employee levels based on salary, rarely checking whether employees truly match their positions. In fact, the correct approach to salary adjustment is to ensure that the incumbent is competent before making performance-based adjustments. Under the premise of reasonable person-job fit, we then look at "salary competitiveness" and "performance level." Salary competitiveness coefficient = employee salary / market salary for the position. The lower the value, the lower the salary competitiveness, or the company is not paying what the position deserves. Another dimension is performance level, which we measure using "performance grades." From this, we can create a "salary adjustment matrix" with performance grades (A, B, C, D, E) as rows and competitiveness coefficients (<0.8, 0.8-1.0, 1.0-1.2, >1.2) as columns. (As shown in the figure below, click to enlarge)

  1. The top-left corner represents employees with the best performance but currently the least competitive salaries. Theoretically, they should receive a larger salary increase this year to prevent talent loss.
  2. For employees with the worst performance, it is recommended to freeze salaries, require them to improve performance, assess their competency for the position, and consider demotion or elimination.
  3. Similarly, allocate salary adjustment resources reasonably to help plan the salary budget. 2 Salary Structure: How Can Small and Medium Companies Build It? This is a long-term task. As the company grows and job categories increase, a systematic salary structure needs to be built. For existing structures, updates can be made based on major salary reports, adjustments to fixed-to-variable ratios, and additions to salary tables. The most important aspect of building a salary structure is the "job structure," which is also the basis for promotion-based salary adjustments mentioned earlier. The most important part of the job structure is the "job level structure." Only through a job level system can we find corresponding market salary data to build the salary structure system. Many HR professionals in the internet industry believe that it is sometimes difficult to define what a position specifically does, so they prefer to be driven by "competency." However, defining job value ultimately returns to the essence of business; what matters more is value and contribution, not how strong the person's abilities are. Because even if someone is very capable, if they do not deliver corresponding value in the position, the company should not pay a high salary. Therefore, for small and medium enterprises as well as mature internet companies, we believe that the job value should be the main driving factor in designing the job level system. Only in sequences where competency has a significant impact or where competency differences are large should competency be given more consideration. Regarding the "value assessment" of positions mentioned earlier, from a professional evaluation perspective, it involves assessing professional knowledge, leadership responsibility, complexity of problem-solving, scope of impact on the organization, difficulty of interpersonal relationships, etc. In the startup phase of a company, we can start with what contribution and value each level should achieve, define the job level for each position, and thus make value distribution/pay reasonable and justified. Another important concept in the job structure is the "job sequence." Job sequences and job levels together help lock in market salary data, which in turn helps design the salary structure. (Click to enlarge) In the figure above, we list the executive sequence, management sequence, and other professional contribution sequences such as technology, product, operations, and functions. By using the upper, median, and lower limits of each job level's salary, we design the salary range. Through classification, we can also manage the fixed-to-variable ratio. The variable part can be in cash form, such as year-end bonuses, special awards, or the estimated value of other long-term incentives. Because executives in startups often share more in options/equity rather than cash; while for grassroots employees, they may not care much about options/equity but value monthly salary more. So different groups of people have different incentive methods. 3 Salary Budget: How Much Will You Pay Next Year? The annual salary budget generally consists of two parts: "stock budget" and "incremental budget."
  • The stock budget includes market salary adjustments, performance-based adjustments, and promotion-based adjustments.
  • The incremental budget involves future business changes; the company may need to add new personnel or positions. Specifically, from the aspects of position planning, salary standards, and staffing, we plan the number of positions, market salaries, and number of personnel; then we make the total salary budget. Regarding the key factors affecting the salary budget, at a macro level, they are divided into three categories: "business characteristics," "organizational requirements," and "talent strategy." Business characteristics are influenced by "profit model" and "business fluctuation cycles"; organizational requirements need to consider "business development stage," "financial affordability," and "company strategic planning." These all affect the salary budget. After reading the above, do you have a new understanding of annual salary adjustments? A well-functioning and fair salary system not only has strong external appeal but also greatly motivates internal employees to achieve organizational goals and create high-quality performance. In fact, the most important thing in annual salary adjustment is to combine the company's clear development strategy, organizational system, clear job responsibilities, and development channels, adjust the corresponding salary strategy, and achieve a salary management system truly based on job value. -END-