Pay raises demonstrate to employees that their managers appreciate their hard work and accomplishments. In most industries, the average pay increase is in the 1% to 5% range, and a 3% raise is standard. However, some companies don’t have a clearly defined system for giving out pay increases.
Sometimes, companies are unable to grant raises due to budget constraints. Thus, while a manager may want to give you a raise, the company’s budget may not allow for it.
It becomes even harder to respond to a request for a pay raise when an employee drops hints about receiving calls from recruiters or mentions going above and beyond. This often leaves employers at a crossroads: grant a raise or risk losing a valuable employee to a different company that offers better compensation. In the following, we’ll take a look at the best way to approach a request for a pay increase.
Be Objective
Even if an employee comes to you and asks for a pay raise that is above the industry standard, it’s important to take an objective stance and hear them out. Whether it’s a new member of your team or a veteran employee with a proven track record, you should take the time to really listen to why they believe a pay increase is warranted.
HR professionals are charged with ensuring that all employees are fairly compensated—not only when they are initially hired but throughout their tenure with the company. Staying objective means considering employees’ prior experience, level of education, and overall contributions to the company’s mission.
Even in a professional setting, managers and HR personnel may be inclined to turn down requests for raises, even if they believe an employee actually deserves a raise. Listen attentively to an employee’s request and resist the urge to immediately respond “yes” or “no.” You should take into consideration your body language and facial expressions to avoid giving an employee the impression that you’re not interested in hearing what they have to say. Moreover, you should be concerned with the thought process that led up to the request for a raise. It’s a good idea to take notes as they lay out the reasons why they believe that they deserve a raise. You should also be open to hearing about projects they’ve worked on that you may not know about. Your goal should be to gather enough information to make an informed decision that will work for the employee and the company.
Crunch the Numbers
Once you have heard all the compelling reasons why an employee wants a raise, it’s time to get to the heart of the matter: how much of a raise they want. While you don’t necessarily need to know all the reasons why an employee feels a raise is warranted, it’s good to know if they are asking specifically because they’ve been with the company for a long time or they’ve done exceptional work that they feel warrants recognition.
After you’ve heard their reasons, it’s time to crunch the numbers. No matter how good an employee is, there is usually a limit to how much a company can offer in the form of a pay increase. Some positions have a pre-defined compensation structure, and it’s possible that the employee may have maxed out in their current role. If this is the case, a promotion that comes with a pay increase might be the best option. Offering a promotion instead of a pay increase will ideally give employees what they want and allow HR to remain in the good graces of C-Suite executives.
If a promotion is not possible, you should objectively examine the employee’s job duties and compare their compensation with the industry average. What is their level of responsibility? Are they routinely required to work extended hours or take on special projects? Answering all of these questions will make it easier to decide if a raise is warranted.
Consider One-Time Incentives
While the thought of a longtime employee leaving over compensation issues is something that all employers should consider, a pay increase is not always feasible. While granting a raise may not always be possible, this doesn’t mean that there is no solution.
First, you will need to explain to the employee why the raise can’t be granted, which may involve letting them know that their compensation is already above market rate or that, fiscally, the company cannot adjust their pay. Once the employee understands the reasons why their raise was denied, you can then present them with alternative incentive options.
Incentives—financial or otherwise—are a great alternative when a permanent pay increase is not an option. These incentives can serve as one-time rewards, or they can be distributed on a schedule at various times throughout the year. Some employers find that a quarterly bonus is a good alternative to a pay increase. Since bonuses are often based on merit, employees feel a sense of accomplishment when they are able to hit those quarterly milestones. Other companies find that a one-time bonus for all employees works better, as it keeps everyone on a level playing field and is not subjective like merit-based incentives are. You should examine your company’s policies and overall culture to determine which type will work best for your organization.
While pay raises are always a sensitive subject, being able to weigh the pros and cons will make the process easier. Remember to always treat your employees with respect, even if you don’t believe that a raise is warranted. Avoid saying “no” or “yes” immediately, and discuss the request with all of the appropriate team members for clarification on the company policy. If you find that you’re not able to grant the request, avoid placing the blame on superiors, and don’t belittle an employee’s contribution to the company. If you follow these steps, then a conversation about pay raises won’t be difficult.