One of HR’s key roles is to support managers during the annual salary review process. With a salary matrix, it becomes easier to allocate the salary budget among employees in an optimal. It also serves as an educational tool to explain the concept of salary differentiation.
Design a Salary Matrix That Fits Your Business
The purpose of a salary matrix is to visualize the logic behind how the budget is distributed during the salary review process. It provides a clear starting point for setting individual salaries and ensuring fair differentiation.
A salary matrix helps managers determine the appropriate salary increase for each employee based on the available budget. It combines a visualization of performance levels with relative salary levels — that is, an employee’s pay compared to internal salary structures and/or market benchmarks.
When designing a salary matrix, you can choose to give general guidance (e.g., low, medium, and high increases) or offer more specific recommendations in percentages.
Examples of Salary Matrices
Below are two examples of what a salary matrix can look like:
Option 1: Salary matrix as a general guide
Option 2: Salary matrix with percentage recommendations
How to Use the Salary Matrix
- Employees who perform well but already have relatively high salaries: a medium salary increase is typically recommended.
- Employees who perform well and have low salaries: a high salary increase is usually recommended.
- Employees performing as expected: a salary increase in line with the general budget is recommended.
- Employees with low salaries and underperformance: a limited salary increase is recommended to prevent them from falling too far behind over time.
- Employees with high salaries and underperformance: a limited or no salary increase at all is recommended. Make sure to check any applicable collective agreements, as there may be individual guarantees to consider.
Employees who underperform should have a development plan that supports them in improving their performance going forward.
Choosing the Right Salary Matrix
Which type of salary matrix should managers use in the salary review? Select the model that aligns with your business strategy, organizational culture, and maturity in communicating salary increases.
It’s also important to strike a balance in the size of the recommended differentiation (%) between employees with higher and lower performance levels, as well as those with relatively high and low salaries.
If you use a percentage-based matrix, ensure that the calculations are made so the overall salary budget is maintained when managers follow the guidelines.
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