Why give pay raises?
On paper, giving a raise in pay can seem like a costly activity that may cut into your overhead. However, giving regular pay raises to your employees is an opportunity to have positive discussions about your company and the employee’s contributions to it. Some employees may express their frustration with feeling underpaid or not having their time valued properly. Communicating a salary increase opens up an opportunity to discuss with your employees the reasons or equations used to calculate the amounts in their paycheck. These reasons might include:
- What competitor companies are paying employees in similar roles
- The size or value of their client book
- The number of reported hours they are working on a weekly or monthly basis
While many employees may demonstrate loyalty to their company and their coworkers, they may find themselves considering how their salary impacts their life outside of the office. Stressors from home and family life, increasing bills, or changes in their personal life may have employees looking elsewhere for an increased salary. Having regular discussions about your employee’s salary and anticipated raises allows your company to remain competitive and retain the best talent.
When is it time to give a raise?
Every company may take a different approach when it comes to scheduling salary increases. Sometimes pay increases are written into an employee’s offer letter or contract. Other companies discuss and issue raises during employee reviews and evaluations. It is also worth considering individual pay adjustments with employees whose performances are consistent with the growth of a company. Examples of this can include employees who:
- Have regular contact with valuable clients
- Who work to increase the overall revenue of your department or company
- Are taking on added responsibilities
- Who demonstrate strong leadership among their peers
How to communicate a pay raise with your employee?
When it comes time to communicate an increase in salary to your employee or team, there are several key factors to keep in mind. While it can be exciting to deliver good news to an employee, miscommunication can result in conflicts or legal liabilities. Generally, discussions over pay increases should be done in person and privately. In some cases, it may be helpful to have a representative from human resources or accounting present to answer any questions.
Consider these best practices when it is time to communicate the paycheck increase:
- Always give context to the pay bump. Whether you are issuing a raise to be consistent with the cost of living increases in your area or if you are rewarding exceptional work ethic or performances, always be sure to let your employee know why they are receiving a raise.
- Highlight any specific contributions your employee made to the company that contributed to the increase in salary.
- Always discuss the raise in dollar amounts instead of percentages. Saying it is a “2%” increase always sounds less significant than the corresponding dollar amount. Tell the employee the new annual or hourly dollar amount they will be receiving.
- If an employee is only receiving a cost-of-living increase, frame it as a merit-based pay raise. Doing so will likely increase employee confidence and morale.
- Avoid giving any reason as to why the paycheck increase isn’t higher unless the employee mentions their dissatisfaction.
- Always thank the employee for their contributions to the company to encourage them to continue doing a great job.
- After the raise is communicated, follow-up with your Human Resources department to confirm the pay raise has been applied.
Who should communicate the raise?
The communication of the pay increase can depend on your company’s existing payroll protocol. This may be left to the employee’s direct report or to the manager who oversees their department. In some cases, it might be necessary to have a human resources representative on hand to answer any questions concerning withholdings or payment logistics.