What do I do when my employees ask for a raise?

There’s no conversation that business owners want to avoid more than when an employee asks for more money. It’s awkward. Either you haven’t done a good job keeping up with your performance reviews (and so they deserve a raise and you are late giving it to them); or they don’t really deserve a raise and you need to tell them “no”. Either way, it’s not a fun conversation.

Looking at it from the other side of the table for a minute, this is a courageous act! Your employees know it’s going to be awkward—it’s difficult for them too! It’s OK to acknowledge that they took a big risk and to let them know that you will review the situation and get back to them. If they came to you with some research and data, take the time to review it with them and hear them out; but know that you don’t need to respond right now. Acknowledge their efforts, and give them a date by which you will get back to them.

Ask for a raise

 

Do your homework.

Before you respond, you need to do some homework. Is what you are paying (or what they are asking for) fair for the position? You can do some simple research to determine the market price for any position. Knowing what others are paying for the work you are getting done gives you information. If you are at or above that number, then you can be confident that (if you need to) you can hire a replacement for that price.

Evaluate the situation

Beyond the fairness of the salary you are paying, you need to consider the job that the employee is doing. Are they an up-and-comer who’s doing great work and inspiring others too? That might be worth a few extra bucks. Are they someone who is barely getting their work done, coming in late and making mistakes? Then this might be an opportunity for a performance management discussion.

Prepare for the meeting

Whether you are offering your employee a raise or not, you need to be prepared for this conversation. If you find yourself feeling like you need to offer them a raise, you need to consider: What will you offer? What’s the effective date? When will they see it in their paycheck? When can they expect to talk about their next raise? These are all questions you need to be prepared to answer. I usually write myself a little script, “I’m offering you a raise of X% effective on [date]. So you should see an extra $[raise amount] in your check on [next payroll date].

But don’t just leave it as a conversation about money! Take this opportunity to talk with them about their work, how they feel about the company, and what their next steps are for growth. Employees who are asking for a raise are usually folks who want to advance their careers (and earning potential). Give them some guidance about what you want to see from them!

What if they are disappointed?

We are not always willing (or able) to meet our employees expectations about their earnings. It may be that their expectations are different from yours, or their research led them to a different conclusion. Be prepared to talk about how you determined the number that you are offering—and what they could do to perform at a level that might earn them the number that they are asking for.

It’s always hard to deal with disappointing your team, that’s why you need to be really confident in the number you are offering; so that ultimately, if they leave, you know you can find someone else for that price. You can’t be held hostage by someone who keeps saying they are going to leave.

What if they keep asking?

“OK, I’ve done my homework, I’ve had the conversation, but they keep coming back and asking over and over again. I keep turning them down, but they keep asking!”

When they keep asking, you need to have a conversation with them that goes beyond the money. Compensation is there for one of two reasons: to enable employees to live, pay their bills and feed their family, and for recognition—to appreciate and thank people for doing a great job. You need to identify which of these is driving your employee’s behavior; are they financially strapped, or are they feeling unappreciated?

For those who are feeling strapped, ask yourself, what would I be willing to pay them more for? Is there something that they could do that would produce more value for the company? Could you create a bonus payment that hinges on achievement of that goal? That might be one way to bridge the gap.

For those feeling unappreciated, are there other things that you can do that might communicate that you value the work that they are doing? Could you change their title, or even just recognize or say thanks more often? These little things can make a substantial difference for an employee’s work satisfaction.

What if I can’t afford it?

Sometimes you do your homework and you realize that you are getting a tremendous deal! The person who’s asking for a raise is worth substantially more—the problem is, you can’t afford to pay it!

This is a tricky situation in many ways. If you say “no” and you don’t give them a raise, they can leave and make more money. If you then need to replace them, it will be difficult to find someone who is willing to work below the market rate for the position. Whether you pay this person, or pay the next person, you are likely going to have to find a way to pay more to get the talent you need!

Could you offer a bonus (based on a metric that would generate more money) that might bridge the gap? Could you cut costs someplace else? Could you get by with a part-time person in that role? Something’s got to give!

An employee asking for a raise doesn’t have to turn into an acrimonious negotiation; there are lots of opportunities to create a win-win outcome. Take your time, do your homework and communicate clearly to turn this awkward situation into a positive one.

Brad Farris

As principal advisor of Anchor Advisors, Brad Farris has experience leading businesses & business owners into new levels of growth and success. Through his work with over 100 Chicago area small businesses he has experience in guiding founders and business owners through the pitfalls and joys of growing their business. Prior to joining Anchor Advisors, Brad spent over 10 years managing business units for a family-owned conglomerate with sales of $2 million to $25 million.  When he's not working, Brad enjoys cycling, cooking and the NFL. He is married with 5 children and lives in Chicago, Illinois. Connect with him on Google+, Twitter and LinkedIn.

Comments

  1. For me, if an employees deserve a raise, then definitely they will get it. I mean, they work hard and really works effectively for the business so they must rewarded for that. But I will also consider the business’ resources. And you have to be transparent with your employees about it so that they will understand why you can’t give them a raise.

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