How to decide who gets a pay rise

Deciding how and when to award pay rises has become increasingly complex. In an ideal world, salary increases would reflect employee performance and contribution. However, in reality budget constraints, economic pressures, and talent shortages mean decisions must be made carefully.

The Hays Salary Guide FY26/27 highlights a shifting landscape, where skills shortages persist, salary growth is more selective, and employee expectations now extend well beyond pay.

So, how can employers strike the right balance? Here’s what to consider when reviewing pay.

8 key factors in determining salary increases

1. Review individual employee performance

A strong performance review is the foundation of any salary decision. Assess how each employee has contributed to business outcomes over the past year.

Consider the following:

• Goal achievement: Have they consistently hit or exceeded targets over the past year?
• Quality and productivity: Review the standard and quantity of their work output.
• Proactivity and leadership: Have they taken initiative, supported others, or introduced process improvements?
• Project success: Did they deliver key projects early, or go beyond expectations?
• Collaboration: Do they contribute positively to team dynamics and culture?
• Skill sharing: Have they passed on knowledge or introduced new capabilities to the team?
• Growth mindset: Have they upskilled, taken on new challenges, or shown a commitment to development?

This approach supports fair, performance-based salary increases by reinforcing productivity, and hopefully helping retain top talent in a competitive market.

2. Assess employees’ responsibilities

Each employee’s responsibilities are shaped by their role but can evolve over time. When considering changes to pay, also consider:

• Job description review: Reassess the outlined duties to confirm the current scope and complexity of the role.
   
• Additional job duties: Identify any tasks the employee has taken on that go beyond their official job description. These often emerge gradually and can signal the need for role reclassification.
   
• Promotion: If their expanded role warrants a promotion, action it. If budget constraints limit immediate increases, be transparent and commit to revisiting their pay increase when your financial position improves.

If a significant difference is found between their baseline duties and the responsibilities they’ve been carrying out, it may be worth prioritising their increases to fairly compensate them for their efforts.

3. Compare market data

Ensure your pay decisions reflect current market conditions. Using tools like the Salary Checker, and cross-referencing with insights from the Hays Salary Guide FY26/27 allows you to match your pay brackets with the average across your industry.

• Industry standards: Compare competitor salaries to confirm your offers remain competitive for each role.
   
• Regional and organisational context: Adjust benchmarks based on your company’s size and location.
   
• Rising cost-of-living alignment: Account for local living costs to prevent dissatisfaction.
   
• Data-driven justification: Market insights reinforce the rationale behind the salaries you set.

Using up-to-date salary benchmarking remains critical to staying competitive and supporting retention.

4. Evaluate skills

When reviewing salaries, factor in the value of an employee’s skills. This is particularly important for skills in high demand, in light of a growing skills gap.

According to our our salary guide:

• 82% of employers highlighted the need for people skills, such as communication, emotional intelligence, and collaboration.
• 73% cited the importance of flexibility and adapting to change and uncertainty.
• 59% pointed to the value of creativity, including critical thinking and problem-solving.

5. Factor in role seniority

Seniority often influences salary, but it shouldn’t guarantee an automatic increase. Instead, assess whether a senior title reflects meaningful value.

Look for indicators such as:

• Depth of experience
• Commercial acumen
• Specialist expertise
• Leadership capability
• Industry knowledge
• Strong internal or external networks

Likewise, don’t overlook mid-level employees who demonstrate strengths often attributed to senior roles. If they’re delivering high impact, they may also warrant a salary review. Use seniority as one input, but base salary decisions on actual contribution and capability.

6. Long service and loyalty

High turnover remains costly, and retention is an increasing focus in 2026.

With 75% of organisations reporting skills shortages in New Zealand, retaining experienced employees has become more important than ever.

Long-serving employees provide value through knowledge, consistency, and reduced recruitment costs.

7. Prioritise in-demand skills

In a market impacted by widespread talent shortages, replacing skilled employees can be difficult and expensive.

If a high-performing employee leaves due to uncompetitive pay, organisations face:

• Hiring and onboarding costs
• Lost productivity
• Disruption to teams

Targeted salary increases for in-demand skills can help mitigate this risk.

8. Offer non-financial benefits

While salary increases are important, they’re not the only driver of employee satisfaction, especially when budgets are tight.

Many employees value non-financial rewards just as highly, including:

• Flexible work arrangements
• Work-life balance
• Training and development
• Wellbeing and mental health programs
• Clear career pathways
• Extra leave entitlements
• Strong team and manager relationships
• Positive company culture

If you're not in a financial position to increase salaries, offering meaningful benefits can help retain employees. Interestingly, while some organisations offer up to 25 perks, the two most popular benefits attract more interest than the remaining 20 combined, so it’s worth asking your team what matters most to them. Uncover the list of benefits in Hays Salary Guide FY26/27.

Communicate early

If company performance has not been as expected this past year, flag this early with your employees. Let them know as soon as you can that the downturn in business might have implications on salary increases. Don’t wait until a salary discussion to share the implications. Instead, be upfront to help manage employee expectations and minimise disappointment.

With salary growth remaining modest for many, combining targeted pay increases with strong benefits and clear communication will be key to retaining talent in the current market.

If your salaries are below the external typical value, it can impact employee retention and turnover. Hays Salary Guide FY26/27 is based on a survey of more than 12,000 organisations and skilled professionals. Access typical salary trends and insights relevant to your industry. Download your copy today.