As published in Stuff on May 3, 2023
With today’s cost of living challenges, your team members will be more expectant around wanting a pay rise this year. Before you either shell out for an increase or give a straight-up “no”, there are a few things to consider… Here are a few thoughts on how to handle these requests.
When an employee asks for a pay rise — whether you saw it coming or it’s out of the blue — it’s important not to react and regret it. Don’t respond immediately! Acknowledge their request and give a commitment that you will think about it and get back to them soon, rather than saying something off the cuff that might haunt you later.
You should acknowledge their courage for raising the pay review request. It takes guts to ask for a pay rise. While your natural reaction as a manager might be negative, you should try and be grateful that they have raised this with you because it gives you an opportunity to retain them and to show that you value them (whether they end up with a pay rise or not).
You want to understand why they are asking for a pay rise rather than jumping to conclusions. Read between the lines for their true motivation here:
- Are they struggling financially?
- Do they think others in the company are being paid more than them?
- Do they think they are underpaid and undervalued?
- Do they feel they have more responsibility?
- Do they feel overworked?
Many of these reasons are signs that they’re not 100% happy in their work. Different motivations will require different responses — and a pay rise isn’t always the best answer.
To understand why someone wants a pay rise, prompt them with “Tell me more” as part of the conversation and see what they say. You can also ask them, “If you were your manager, would you give you a pay rise, and why?”
It’s good to have some established pay bands in your company and clear knowledge of what people need to do to progress on the pay scale. How can you find out what competitors pay for similar roles?
If they are struggling financially, consider other ways you can support them beyond a pay rise (especially when it is not justified). Are you able to give them a bit more responsibility that would justify a pay rise? Can you give them access to a company discount you get for something that will make a difference like fuel or phone bills?
If you really can’t afford to give a pay rise, there are many things you can give an employee that say ‘I value you’ that don’t necessarily end up as more money on your wages line in the P and L. You could give them one-off vouchers, additional training, extra time off, take them out for lunch, start an Employee of the Month, give them a thank you note, mentor them more closely, offer them more flexibility, give them more exposure to certain parts of the business or added autonomy or influence within the business.
Even if someone is already fairly remunerated, a pay rise can work to show that you really value them where they are an asset you really do not want to lose. Can you re-work your available budget to give a key person a pay rise even when your initial numbers show you can’t afford it?
Remember: not everyone will ask for a pay rise directly. Some will give you indirect hints like sharing that they’ve been called by a head hunter or telling you how hard they have been working. Be on the lookout for these hints and get proactive where you need to so you give yourself the best chance of retaining your A-team.
While you should take some time to research all the options, it’s important to provide an answer as soon as possible to show professionalism and respect for the employee. Once you have made your decision, you need to communicate very clearly ‘why’ and explain the reason behind your decision.
The key to pay rise requests is fairness. Consider the employee’s performance, the value of the job and the market rate, as well as how tight the labour market for this specific skill set.
Sometimes a role hits a pay ceiling. Yes, you might consider some inflation adjustments but to get the pay increase an employee is wanting, they might need to really step up into a new role, ideally within your company.
Where the decision is ‘no’, clarify why the increase is not feasible at the moment (eg. you took their request very seriously and you’ve done research A, B, C etc and found that their pay is appropriate). Be empathetic and let them know what they would need to be achieving or doing to be able to get a pay rise in the future. This is important as otherwise disgruntled employees can cause chaos. You may even check in with them more often than normal to support them moving closer to where they need to be to get a pay review. Use positive language when you’re declining their request, sharing how valuable they are so you can help their morale and help them understand that they’re still a valuable asset to your business.
Ultimately you need to ask yourself:
- Can the business afford this pay rise?
- Can you afford to lose this person? How important is this person for the longer-term good of your business?
- What is the least risky answer in this situation? Knowing if you lose someone, beyond downtime, there is no guarantee a new person will work out.
Keep in mind with all of this that whoever asked you for a pay rise arguably wants to stay which is why they’ve asked you instead of simply applying for a new job. That’s a positive.
The best idea is not to wait for your people to ask for a pay rise. Make it a priority to be evaluating how your people are performing including grading them. Offering a pay rise proactively (without being asked) is about the biggest motivation someone can receive along with positive recognition.
Business Changing owner Zac de Silva is a business coach who runs business planning and leadership workshops click here for more details.
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