Transparent salaries, reduced subjectivity in salary setting, and not least, increased trust among employees – there are plenty of reasons to establish a solid salary policy. But what should the policy include, and how do you get started? Here’s a checklist covering everything you need to consider.
What Is a Salary Policy?
A salary policy is a guiding document designed to promote fair salary setting within a company while also helping the organization achieve its vision, strategies, and overall goals. The policy serves as a framework for both managers and employees, ensuring everyone shares a clear understanding of how salary setting and progression work within the company.
Without a salary policy, it can be difficult for both managers and employees to understand the factors that influence salary setting, and the risk of arbitrary salary decisions increases.
A salary policy also provides a shared set of values, clearly outlining what the organization prioritizes when setting salaries – both for new hires and during ongoing adjustments. Each company’s policy will look different, as it is shaped by the specific conditions and goals of the organization.
A well-defined salary policy simplifies the process by:
- Reducing the risk of unfair or arbitrary salary setting.
- Providing managers with a clear framework for salary discussions.
- Offering managers and employees a shared understanding of the salary process.
- Boosting employee engagement and inspiring alignment with the company’s goals.
Is a Salary Policy Mandatory?
While there is no legal requirement for employers in Sweden to have a salary policy, collective agreements may mandate one. Moreover, under the Discrimination Act (in Swedish Diskrimineringslagen), employers are required to analyze pay structures and practices, including conducting annual pay surveys to identify and address salary disparities. This requires employers to document how salaries are determined, making a salary policy an important part of these processes.
Getting Started: A Step-by-Step Checklist
1. Align with Your Goals and Vision
Your salary policy should be rooted in your company’s mission and overall strategy. Start by outlining your business objectives, vision, and strategic goals to create a solid foundation for the policy.
2. Define Your Market Position
Understanding what constitutes a competitive salary in your industry and for various roles will help you attract and retain the right talent. Therefore, the next step is to determine how you want to position your company’s salaries in the market. Ask questions like: How do our salaries compare to similar companies in the industry? Do we aim to offer top-tier salaries, or do we target the median? What is our ideal position in the job market, and how can we achieve it? By addressing these questions, you can establish a clear salary strategy that enhances your competitiveness.
3. Specify Compensation Types
Beyond base salary, consider additional benefits like pensions, wellness programs, company cars, performance bonuses, or commission, and clearly document these in the policy. If compensation varies between employee groups, make sure to specify this. Many companies opt to reference supplementary documents for detailed descriptions of benefits, such as a pension policy or vehicle policy.
4. Establish Salary-Setting Principles
Salary-setting principles are the guidelines that shape how salaries are determined. While these principles differ across companies, they often focus on factors like competence, responsibility, performance, and the complexity of tasks.
By defining these principles clearly, you ensure that salaries are competitive and equitable – something that benefits not only employee development but also the growth of your business!
5. Outline the Salary Setting Process
Clearly outlining your salary setting process gives employees a clear understanding of how it works within your company. It reduces the risk of misunderstandings and builds trust among employees, as it becomes clear both what is expected of them and what practices you as a company follow.
So, what information should be included in the description? Well, among other things, it should contain information about how the salary review process works, how salaries are set during recruitment, and how they are adjusted when new tasks or roles are taken on. It is also important to clarify how any discrepancies in salary setting identified during a pay survey will be addressed. Some companies choose to include this information directly in the salary policy, while others attach it as an appendix.
How does the salary policy relate to the pay survey?
The salary policy and the pay survey are closely connected – both aim to promote fair and non-discriminatory pay within the organization. You could say that the salary policy outlines how the salary process should work, while the pay survey allows you to evaluate whether the policy is being followed in practice. In other words: the salary policy establishes your guidelines and principles, while the pay survey helps you identify any pay inequalities and enables adjustments to the policy when necessary.
Read more: Quick Guide: This is Pay Equity Analysis
6. Who Is Responsible for What?
To ensure a smooth and efficient salary process, it’s also important to have a clear division of responsibilities and a well-thought-out timeline for recurring tasks. Who does what will naturally vary between companies, but typically, company management establishes and coordinates the guidelines for salary setting. Each manager then conducts salary discussions and determines individual employees’ salaries. This is usually done according to the "grandparent principle," meaning that the salaries must ultimately be approved by the CEO or senior management team. Generally, HR is also involved in the process.
Consider how responsibilities should be distributed within your organization and document this in the salary policy. If no specific department is responsible for a section of the salary policy, clarify the reasoning behind that decision.
7. Communicate and Integrate
You’ve now laid the foundation and developed a salary policy with clear guidelines for the company’s salary process. So, is the job done? Not quite. As we’ve mentioned before, the purpose of the salary policy is to ensure the process is transparent across the entire organization. The next natural step is therefore to inform all employees about the policy. For managers, it’s also a good idea to review the salary policy in greater detail, so you can effectively communicate its key points to your team and address any questions that may arise.
Remember: Having a salary policy doesn’t automatically mean that all employees understand it or even know it exists. How you use and communicate the content of the salary policy is just as important, as it can significantly influence how fair (or not) employees perceive the salary-setting process to be.
8. Keep Your Policy Up-to-Date
Last but not least: In order to remain relevant, the salary policy must be updated as the business and the external environment evolve. After each salary review, you should evaluate the process. What worked well, and what can be improved? Does anything need to be adjusted before the next review? Ongoing dialogue with the managers responsible for salary setting is essential!
Let Smart Tools Simplify the Pay Survey Process
Does the pay survey feel cumbersome and time-consuming? Would you prefer a more efficient approach? In our web-based HR system, Flex HRM, we’ve focused on making the process as smooth as possible, with all data gathered in one place and an intuitive workflow for all stages of the survey – from job evaluation to action plan. Feel free to contact us if you’d like to learn more!
