Eyes on salary planning: How to successfully prepare for your annual employee appraisals

Tips on how to conduct annual reviews with your employees are already a dime a dozen. However, one central topic that is neglected in many companies is the salary increase or salary definition. And this has already caused a lot of trouble in some places. Perhaps also in your company. Today, we’ll show you how to properly prepare for your annual employee reviews and ensure that you can plan your salary with a good feeling.

Why do salary increases often lead to turmoil?

Management promised too much salary, but you can’t deliver on the promise? You notice that each department is cooking its own soup and your money is being distributed haphazardly? Before you know it, some are happy to receive more salary while others go empty-handed. Perhaps you’ve already experienced situations like this yourself in your company.

What does all this have to do with your annual performance reviews? A lot, because you can already do a lot in preparation so that situation like this don’t happen to you. Even if your annual reviews don’t take place until the end of the year, it makes perfect sense to start preparing now because, in the best case scenario, it will happen hand-in-hand with your year-round planning.

Prepare your departments for annual reviews with your employees

What do we mean by this? Picture this: Your numbers are in the finance department. Your Head of Customer Success doesn’t necessarily have access to your company numbers, let alone an overview of your HR budget. If, for example, an employee in the support team has established herself in a new position through outstanding performance or increasing responsibility, the Head of Customer Success quickly realizes that her salary needs to increase. So the focus is on a salary increase at the start of the new contract or before she takes up her new post. Problem: The Head of Customer Success doesn’t know how many salary increases are coming, how many new hires are expected, and whether your overall budget will support the salary increase. This can have devastating consequences. And this is where you can start.

Annual employee reviews, especially salary reviews, are a matter for the company, not individual departments

What preparations do you make for your annual employee reviews? And how do you ensure that the planned salary changes are within budget? You can start by asking yourself the following questions:

  • Do you plan your personnel costs before you start your annual employee reviews?
  • Do your departments have knowledge of your current personnel costs and total costs?
  • Do you sit down with ALL departments before salary discussions are put into action?
  • Are the planned salary increases in line with your business goals and values within the company?
  • Is it clearly communicated with your management how much budget is available to departments for salary increases and new hires?

Did you answer no to at least one of these questions? Then read on to learn how to support your departments and what to do and when to properly prepare for upcoming annual employee reviews.

Follow these steps before you begin your annual employee reviews

1. Salary planning with all team leads

Salary planning should take place with all departments. Therefore, it is important that you sit down with all departments well in advance of the annual reviews to discuss the salary increases you are seeking and need.

To ensure that you quickly have an overview at hand, all team leads or planners from the individual departments can transfer the relevant plan data into a common planning model.

2. Perform personnel cost planning with target and actual values

Perform personnel cost planning before you conduct your salary discussions.

In doing so, incorporate all of your salary plans and ideas. Now is the time to review how much budget you have for your staff overall and how much of that can be spent on each department and individual employees. Keep track of your expenses throughout the year and make sure you stay within your budget. It can help to do your personnel cost planning with agile software, as it can reconcile actual and target values at any time and also make projections taking into account known influencing factors.

3. Make projections in the overall cost planning

What is often forgotten is to check to what extent your personnel budget lies within the overall budget.

To do this, it is helpful to have an overview of your cost centers in the company at all times and to be able to use current figures at any time during the year. Software solutions that automatically carry out your entire corporate planning, including your cost center planning and personnel cost planning, are a great help here. When the annual meetings with your employees are due, you can use the software to carry out personnel cost planning within a few days, as well as automatic extrapolation in your overall cost planning.

4. Adjustment of your salary definition

Depending on the results of your projections, you may need to adjust your salary planning again.

In doing so, also bring your planned salaries into line with your corporate goals. What goals do you want to achieve in the coming year? What investments are necessary to achieve them? And in what way do you want to value and motivate your employees so that your goals can be achieved?

5. Communicate your plans with your employees

Because this can save you a lot of trouble and surprises. Share your plans and goals with your management and employees.

Communicate what your team can expect in terms of a raise and payouts. Also explain to them how much money your company is investing in which department and what the goal is.

Final review of your numbers

In the end, of course, whether or not you can use your projected salaries as you would like depends on your annual employee reviews.

While one employee may not renegotiate, the long-time production manager may expect significantly more than what you planned. Therefore, carry your new numbers over into salary planning and check to see where buffers have been created that you can use elsewhere.

Bridge between salary planning and salary definition

Your salary planning can be mapped and adapted in a software designed for this purpose. You can simply transfer the planning data of the departments automatically as default values into the actual salary definition. Before and after you conduct annual reviews with your employees and the values are transferred to the payroll system, the software simulates all measures for you so that the data of the salary definition are aligned with the planned values.


In order to prepare for the annual employee reviews, it is very important to first plan the personnel costs and then make a projection in the total cost planning. And do this before you put salary changes into action.

With an automated extrapolation of the defined actual salaries, you can better align plan and actual data - also in relation to other plan data of the overall corporate planning.

Our tip: Before planning your annual reviews, follow our steps above and get help by working with intelligent and reliable software. This is the only way to prevent budget losses.

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Ralf Schall

Ralf Schall

Success Manager

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