How to Run a Salary Review the Right Way and the Steps to Implement It

Key Takeaways

• The costliest mistake in a salary review is not underpaying, but spreading the budget evenly to keep the peace, which thins it out instead of retaining the people who matter most.
• Most of the outcome is decided before any number is entered: pay philosophy, budget, and approval rights, not the final adjustment.
• In the most cautious environment in a decade, with average MNC increases at 6.3% and 47.7% of companies holding headcount, process quality matters more than a generous budget.
• A review only creates value when employees understand why they are paid as they are, so communication, not the number, decides how it lands.

A salary review is the recurring process of evaluating and adjusting base pay against performance, the market, and internal equity. With average increases at a decade low of 6.3% and 47.7% of companies choosing to hold headcount, according to the Talentnet-Mercer Salary Survey 2025, execution matters more than ever. This guide moves from the underlying factors, to the decisions leaders must lock first, to the step-by-step process, and to how a salary review becomes a retention tool. For FDI companies, each factor carries an added layer of operating in Vietnam.

Three factors that decide a salary review

A salary review differs from a routine raise in that it rests on evidence, not goodwill. It is also distinct from a bonus review: a salary review lifts base pay and repeats every year, while a bonus is a one-time payout tied to results.

A good review balances three factors, mirroring the familiar 3P model used at multinational companies:

• Market position: how much the role is worth against the going rate. Paying below market for too long loses people to competitors, while paying more than necessary wastes the budget, so accurate positioning needs benchmark data rather than a manager’s instinct.
• Internal equity: consistency across roles of equal value. When two people doing equivalent work are paid noticeably differently with no clear reason, trust erodes faster than any number can fix.
• Pay for performance: the reward for contribution. Flat increases demoralize strong performers and retain weak ones, so increases should differentiate by performance outcome.

Whether these three can be balanced depends on a few decisions leadership must lock in advance.

The decisions leaders must lock before the review

Most of a review’s quality is settled before any number is entered, and these are decisions that belong to leadership, not to the HR team’s mechanics.

The first decision is the compensation philosophy, meaning where the company wants to sit in the market. Paying at the P50 median means keeping pace, while targeting P75 means deliberately paying above market to attract and retain top talent. Many organizations use a mixed strategy, P50 for most roles and P75 for scarce skills. In 2026, roles in AI, data, and fintech are forecast to see increases of 15% to 25% according to 2026 recruitment market reports, roughly 2.5 to 4 times the general market level of around 6.3%, so they often fall into this priority group.

The second decision is the budget and appetite for spend. In an environment where the average increase sits at only around 6.3%, the budget must be enough to retain critical groups while staying within financial reach. Here it is essential to separate the adjustment for the regional minimum wage, which is a compliance obligation to be handled first, from the performance-based increase, so that what is driven by law is never confused with what is driven by contribution.

The third decision is approval rights and the level of transparency: who approves increases at each level, and how openly the company communicates its pay policy. For FDI companies, this decision carries an extra layer of complexity, as a pay framework and review calendar imposed by global headquarters do not always fit the Vietnamese market and its regulations, so the right to make local adjustments should be agreed in advance. Once the strategic framework is clear, the rest is running the process correctly.

The salary review process step by step

The salary review process works best when it follows a fixed sequence, with clear inputs and outputs at each step.

Preparation and the strategic brief

The first step is to define the objective of the review and prepare the data. The brief states the objective, the budget, the priority groups to retain, and the timeline. The data to pull includes a headcount list with current salary, grade, last increase date, and last performance rating. Missing any of these fields forces the later steps to be redone.

Benchmarking against the market with compa-ratio

The second step is to compare each salary against the market through the compa-ratio, the ratio of current salary to the market midpoint for that role. A compa-ratio below 0.80 signals significant underpayment and high flight risk, a priority for adjustment, while above 1.20 means the salary has exceeded the band and the base increase should be held. The most common benchmark source in Vietnam is the Talentnet-Mercer salary survey, covering 678 companies across industry, size, and ownership type. A common error is matching roles by job title alone while skipping job evaluation, which produces a flawed comparison from the start.

Calibrating ratings and building the merit matrix

The third step is to tie each increase to a performance rating through the merit matrix. The matrix combines two axes, the performance rating and the compa-ratio, to produce a specific increase guideline: strong contributors who are underpaid receive the largest increases.

The figures in the table are illustrative; each company calibrates them to its own budget and salary structure. What matters is the logic of differentiation, and this is where many reviews lose their nerve. Spreading increases evenly sounds like keeping the peace, but it really means taking the share meant to retain strong, underpaid performers and handing it to roles already paid enough, then losing exactly the people who are hardest to replace. Differentiating boldly, even leaving some cases at 0%, is the emotionally harder choice but the right one for retention.

Before inputs open, ratings should be calibrated across departments. If every manager rates high, the increase budget runs dry before it reaches the people who truly deserve it.

Budget, approval, and documentation

The final step is to confirm the total cost, approve, and complete the documentation. This is where companies most often underestimate: presenting only the gross increase while forgetting that every unit added to the contributory base also carries roughly 21.5% in mandatory employer contributions, covering social, health, and unemployment insurance, so the figure must be modeled on total labor cost rather than salary alone. After approval, each pay change must be recorded in a labor contract addendum, and HR records must reconcile with accounting before the first pay run. A correct process is only the necessary condition; the real value of a salary review lies in retaining people.

Why the right number can still lose people

A review that is technically flawless can still fail if employees do not understand why they are paid as they are. This is where a salary review shifts from an operational task into a retention lever.

How the outcome is communicated matters as much as the number itself. Instead of simply announcing the increase, managers should explain the rationale: position against the market, performance rating, and the broader budget context. Presenting total compensation, including base pay, bonus, insurance contributions, and benefits, helps employees see the real value of the package rather than the salary figure alone. Talentnet-Mercer 2025 data shows that local companies pay higher bonuses than multinationals yet still see higher voluntary turnover, 9.8% against 6.6%, partly because employees do not understand why they are paid what they are.

Some operational mistakes erode trust faster than any pay level. Pay compression, where new hires are brought in at or above the pay of experienced staff, drives long-tenured people out even when their absolute pay is not low. For FDI companies, applying a rigid global pay framework that ignores Vietnam’s specifics also creates inconsistency between policy and reality. The control steps in the process are therefore not red tape, but a line of defense for the team’s trust.

Finally, a salary review should be measured by retention and engagement outcomes, not only by spending the budget as planned. In a decade of cautious pay growth, the advantage does not belong to the company that spends the most, but to the one that allocates most intelligently and communicates most clearly.

Conclusion

A salary review is ultimately a test of disciplined courage. In a decade of cautious budgets, the company that wins is not the one that spends the most, but the one that dares to differentiate, channels its resources to people who are both strong and underpaid, and accepts that fairness does not mean treating everyone the same.

The move for leadership is to lock the framework before running the process and to model it on total labor cost. But just as important, because what retains people is not the absolute number but the belief that the number is fair, investment in how it is explained must match investment in the increase itself. Talentnet’s Salary Structure Consulting, together with Talentnet-Mercer salary survey data across 678 organizations, helps companies design pay scales, build merit matrices, and turn each review cycle into a fair, defensible decision.