What to Do When an Employee Asks for a Raise

Whether or not they deserve it or you can afford it, here's how to respond.
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Make yourself aware of how your employee's wages stack up in their respective markets to prepare yourself for a conversation involving a raise. (Photo: ESB Basic)

When business is booming, employees want to see the company’s success reflected in their own paychecks. Even when it’s not, some employees think they deserve more. As a business owner, there are a few things to consider before cutting — or not cutting — them a larger slice of the pie.

Employees asking for a raise can actually be a good sign, said Elizenda Jean-Claude, founder of small business consultancy Launch to Scale. It could mean they see your business is successful and growing and want to share in that success.

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“Why are they asking for a raise? Is it because they don’t feel acknowledged, they don’t feel recognized? If that’s the case, try to understand what’s really important to them apart from the money.” -Elizenda Jean-Claude (Photo: Elizenda Jean-Claude)

Whether or not you can afford to offer raises when an employee requests one, here are some tips on how to approach the conversation.

Dedicate time for the discussion

If you have annual job performance reviews, that’s likely when employees will ask for a pay increase. Yes, these reviews take time and energy, but they give you the opportunity to set goals and offer feedback, and if they happen yearly, chances aren’t you won’t be bombarded with raise requests off-cycle.

If you don’t have an annual review system in place, when an employee asks for a raise you may want to schedule a sit-down for a later date to give yourself time to prepare for the conversation.

Research fair market value

Know or find out how the employee’s wages stack up against the pay scale in similar markets, said Jean-Claude. “It’s very important to be data-ready before you have that conversation with the employee. You need to be proactive and know who you’re competing against for employees.”

Compare your wages with those of similar area businesses — the places your employees may look for work if they leave your employment. Jean-Claude recommended running internet searches on job titles or using a salary comparison tool such as Glassdoor, PayScale or Comparably, which compare your wages against those of similar businesses in the same vicinity. Job ads in trade journals may also be a good resource for salary information.

Assess performance

How is the employee’s performance?

“Understand the employee’s track record. How long has he been in the company for you? What has been his contribution so far? Maybe this is one of your top employees and you actually rely on that one single [person] to take the lead. As a business owner, you really need to know where that person fits in terms of direct impact, direct influence on the business’ performance,” said Jean-Claude.

If the employee leaves because they feel undercompensated, think through what it would cost you to find a replacement, train them and get them to the same performance level. Losing a quality team member can sometimes be more expensive than agreeing to a nominal pay increase.

Related: 5 Secrets to Smarter Staff Recruitment

Check your financials

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Before offering, check and make sure you can afford a payroll increase. (Photo: garagestock/Shutterstock)

If a raise is deserved, make sure your business can afford the increased payroll cost, said Jean-Claude. Offering a raise you can’t afford can spell bad news for both you and the employee.

Sometimes, you’re simply not at a place where you can give even a well-deserved raise. If that’s the case, be honest. Let the employee know when you anticipate the timing to be better.
“Employees go work for small businesses because they see the potential of the company, and usually they know that the unpredictability of the company’s success is part of the package.”

Get creative with alternative rewards

If you can’t afford to give a raise to someone who deserves it, look for other ways to reward him or her. Start by paying attention to the reasons behind the request.

“Why are they asking for a raise? Is it because they don’t feel acknowledged, they don’t feel recognized? If that’s the case, try to understand what’s really important to them apart from the money,” said Jean-Claude.

“It might be just as simple as having an ‘employee of the month’ or an employee appreciation dinner. Most of the time we underestimate how much impact this can have, and I think people don’t leverage that enough.” -Elizenda Jean-Claude

Related: Three Keys to Retaining Your Best Employees

And if they don’t deserve a raise?

“It’s all about being very open and transparent. The employee needs to feel appreciated, even if you’re giving a very difficult message. It needs to be constructive.”

Jean-Claude recommended identifying areas in which the employee is thriving as well as areas where improvement is needed before you can consider giving them a raise.

“The key here is to make sure that you set expectations,” said Jean-Claude. “Sometimes it’s just a matter of clarifying their perception of their role versus what your expectations are for them.”

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