What to Do When Employees Ask for a Raise

What to Do When Employees Ask for a Raise…But Don’t Deserve One

Felicia Sullivan

Remember the days when you kept your head down, worked hard, and hoped for the financial best? With “best” being defined as a meager 2-4% annual raise, which wasn’t even guaranteed, and if you were lucky enough to receive a raise, the majority of it would be swallowed by taxes. If your employer didn’t come to the table with the dollars, you either spent your days complaining or looking for another job.

Today, employees are getting bolder with their requests, because competition for competent talent is fierce and the outrageous level of perks has escalated compensation expectations. The proof is in the data, as reported by The Bureau of Labor Statistics, which shows a general upward trend of increased salary and compensation costs for employees across industry sectors. Whether you’re a barista or a banker, you’re probably seeing a few more dollars in your paycheck. All of this sounds great for employees, but what about for small business owners?

For any small business owner, staff retention and turnover are real challenges. A study by BambooHR revealed that 31% of respondents have quit a job within six months. Here’s a staggering stat that will have you weeping into your wallet: A Gallup poll found that it would only take a 20% bump from a competitor for employees to quit.

To throw a truckload of salt into an open wound, when employees quit, you’re left with the turnover costs. According to a study by the Society for Human Resource Management, the average cost per new hire is over $4,000, and that number can skyrocket, depending on the expenses for recruiting, hiring, training, and onboarding new talent. And that’s not even accounting for the effect on your other employees, who have to pick up the work slack for employees who’ve hit the road.

While money isn’t everything, it’s a large part of why employees leave their jobs. You may be able to keep an employee if you have a stellar company culture, but sooner or later they’ll be clamoring for cash, and you have to be a step ahead of the request.

How can you compete with free organic snacks and foosball tables? How can you make sure that the staff you’ve recruited and trained doesn’t jump ship if you’ve failed to meet their salary requirements? Finally, what do you do when employees request more money but they aren’t making the grade?

We’ll show you how to manage a salary hike or promotion request in five easy steps:

Step 1: Say the three magic words

Those three magic words are: Tell me more. Get more information as to why the employee is asking for a raise. It might be that their perception of their performance isn’t in alignment with yours, and that will require mentoring and clarity on your part.

According to the same BambooHR study, the top three reasons for employee turnover are: lack of clarity on job roles and expectations, a difficult boss, and a less-than-stellar onboarding process. Employees want clarity, and it’s important that you’re both on the same page when it comes to their role and performance. Once you’ve heard their reasons, document the salary request and tell your employee that you’ll consider it. This shows them that you’ll give their request the attention and respect it deserves — even if you’re certain you’ll deny it.

Step 2: Evaluate the ask

Just because your employee has been working in overdrive on a special product or to meet an important deadline doesn’t entitle them to a salary bump. When assessing whether a member of your team is due for a raise, don’t confuse a heroic sprint with consistently high performance over time.

In such cases, determine whether a one-time spot bonus for hard work is a better solution than a salary increase. It’s when you’ll be investing in an employee who can bring in additional revenue or reduce costs that an increase in salary can make sense.

Step 3: Do your salary research

How does your compensation match up with that of your competitors? It’s important to do some research on salaries for your industry (or for the particular employee role), both regionally and nationally.

Are you underpaying your employee dramatically? Can you make an incremental bump to inch closer to standards while putting them on a step plan for growth? Read Setting Compensation for Newly Hired Employees to learn, step-by-step, how to research salaries across industries and geographies.

Step 4: When you reject, reject with grace

Always be tactful, respectful, and show that you’ve done the legwork and research in evaluating an employee’s salary request. Remove emotion from the equation when presenting the facts, and close with their career path, moving forward. You never want to leave an employee dejected without a solution that helps both you and them.

Also, consider nonfinancial perks, if your employee deserves them. Would he or she benefit from a more flexible schedule or other on-the-job benefits? You can make the rejection a conversation about temporary alternatives until you can meet their number.

Step 5: Partner with your employee to create goals

Work with the employee to create a step-plan with SMART goals (goals that are specific, measurable, achievable, relevant, and time-bound) so that the employee has a clear path for promotion; that is, so they’ll know all the things they need to do within a given time frame to get the dollars they feel they deserve. If the employee currently isn’t making the grade, then design SMART goals that will help them get back on track to move forward.

Issue informal check-ins so that your employee sees that you’re invested in their growth. Read our 5 Biggest Mistakes You Can Make When Setting Goals article to make sure you and your team are set up for success.

Recruiting and retaining talent is a challenge for any small business owner — regardless of your leadership savvy. And, when it comes to money, the stakes get higher. Don’t run the risk of losing a great employee, even if they don’t warrant a salary increase right now. Why? Your employees are your investment and they can be groomed to be your top revenue generators.

An employee who isn’t eligible for a salary increase today might be making the grade in the long run. Take the time to evaluate and discuss their request and see if there are ways in which you can buffer the financial issue with non-monetary perks and benefits. Always create clear expectations and goals, because your employee’s success contributes to your success as a small business owner.

Tell Us: Have you ever denied an employee’s request for a raise? How did you handle the situation?

One Response to "What to Do When Employees Ask for a Raise…But Don’t Deserve One"

    • Thomas SoRelle | May 1, 2019 at 2:45 am

      The section on how to handle a employee’s raise request.
      Thanks

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