A practical guide to the annual salary review: setting the budget, using a merit matrix, calibrating decisions and explaining outcomes to employees.
For many employees, the annual salary review is the one moment each year when they find out what the organisation thinks of them. It deserves more care than a spreadsheet of percentages sent to managers a week before the deadline.
A well-run review spends the budget where it matters, treats similar cases consistently, and gives managers outcomes they can explain.
| Stage | What happens | Owner |
|---|---|---|
| 1. Market check | Refresh benchmark data and confirm the organisation's market position policy | Reward or HR |
| 2. Budget | Set the overall increase budget and any separate pot for adjustments or promotions | Leadership and finance |
| 3. Guidelines | Translate the budget into a merit matrix and rules for managers | Reward or HR |
| 4. Decisions and calibration | Managers propose increases; leaders review them across teams | Line managers and leaders |
| 5. Communication | Managers explain outcomes individually; letters issued | Line managers, supported by HR |
The budget should reflect three things: how the market is moving for your roles, what the business can afford, and where your current pay sits against your policy. An organisation already well above market can afford a smaller budget than one that has fallen behind.
In the UAE, fixed pay makes up most of the typical package, particularly below the most senior levels. That makes decisions about salary increases, and how they compound year on year, one of the largest long-term cost decisions an employer makes.
Source: Humatix analysis of our proprietary compensation database, built from previous benchmarking surveys, and verifiable public sources.
Consider holding back part of the budget as a separate pot for market adjustments and promotions. Mixing them into the merit budget forces managers to choose between rewarding performance and fixing gaps.
A merit matrix links the size of an increase to two things: performance, and where the person currently sits in their pay range.
Illustrative merit matrix: relative size of increase
The logic is simple. A strong performer paid below midpoint should move faster towards it. A strong performer already near the top of the range is rewarded mainly through bonus rather than a large permanent increase. Over several cycles, this moves pay towards your intended position without one-off corrections.
Before increases are confirmed, leaders should review proposals across teams. Useful questions include:
The conversation matters as much as the number. Give managers a short guide: the overall budget context, how the matrix works, what drove this person's outcome and what they could do to progress. Managers should hold the conversation in person, not leave the letter to speak for itself.
Employees who receive a modest increase are far more likely to accept it when they understand why, and can see a route to a better outcome next year.
Humatix supports UAE and GCC employers through the salary review cycle: market data, budget modelling, merit matrix design, calibration support and guidance for managers on communicating outcomes.