By Jason Richmond, CEO and Chief Culture Officer at Ideal Outcomes, Inc.
What do you do when an employee asks for a raise? It’s one of the most challenging situations that leaders encounter. It’s not an easy conversation for either party—and it’s probably occurring with greater frequency than ever before.
Employees want raises because of their work and accomplishments, and according to Prudential’s “Pulse of the American Worker Survey,” 68% believe they deserve a raise in the short term. With so many expected requests, what can you do to redirect the conversation so everyone wins? What can you do to discourage workers from seeking a position elsewhere?
Respond with respect
The first thing to bear in mind is that every request for a pay raise must be treated with the utmost respect. Most people must pluck up the courage to ask for the increase even though they feel it’s something they have earned (otherwise, they wouldn’t be asking). Allow them to make their case and then ask questions in a positive, non-aggressive manner to dive deeper into their rationale.
Review their abilities
Carefully consider the individual’s contributions to the company in a performance review. Let them tell you of initiatives or specific tasks you might not be fully aware of. You’re looking for a win-win—not to impose a roadblock. What is the true value of this employee? How big a loss would it be if they decided to leave?
If your company’s budget doesn’t extend to giving a pay raise for an individual (which may well require pay raises for others, too), clearly and honestly explain why. If denying a pay bump relates to performance, it’s vital to let the employee know where they need to improve and what you will do to help them, so they are likely to get a positive answer the next time they ask. At the same time, find something they have done that you can praise.
Handling a request for a pay rise gives you the opportunity to establish where the team member fits in your organization and their potential for growth. Sit down with the team member to map their next steps up the ladder, what promotions and job titles are in store, and how compensation relates. Additionally, consider providing the necessary learning and development programs that will help them fit into their new role. Setting the intention and acting upon them shows them that they have a long-term future with you while strengthening your talent management strategy.
How important is training? A report from global education company Cengage Group found that 78% of people took an online course before quitting their organization, and 64% reported that this training was integral to getting a new job. Said Cengage CEO Michael Hansen, “There is a clear message that today’s workers really demand career growth—and if they don’t find it within their employer, they will quit the job and get it themselves and then get onto the next job.”
Make sure it’s fair
Become knowledgeable about the salaries that the individual’s peers receive and what’s common in the industry. Is the employee in the same salary range as others with similar tenure, experience, and skills? Consider how long they have worked for you.
Make sure there is no gender disparity, and don’t forget that the grass may be greener elsewhere. Research by online recruitment platform Zippia shows that individuals see a 14.8% salary increase when they change jobs, whereas wage growth within the organization is just 5.8%. The same survey also showed that one in five workers said they would take an average pay cut of 10% if it meant better work/life balance or working for themselves.
What if it’s not all about the money?
What do they really want? Is it all about the money? While everyone wants to be paid what they feel they’re worth, people are just as concerned about the worth of the company, its workplace culture, and lifestyle incentives.
In the Prudential survey of 2,000 full-time workers, one-third of those who’d switched jobs took a pay cut in exchange for a job that gave them a better work/life balance. In Oracle’s AI@Work global study of 14,639 workers, nearly nine out of ten respondents said the meaning of success had become more aligned with achieving a work-life balance, being in good mental health, and having flexibility at work. 29% said that having a meaningful job was more important than a steady paycheck.
Consider, therefore, offering benefits in addition to a raise that are becoming more standard widespread business practices such as working from home, the flexibility of home-office hybrid work, and providing childcare.
When you must say yes
Individuals who are a proven part of the team whose abilities are known and recognized deserve a pay increase. If the budget allows, strive to reward them as it's far less expensive to keep a good employee than to hire and train someone new. Consider providing special bonuses or mid-year salary adjustments rather than a standard annual review.
Compensation is a major indicator of how individuals see how much they are valued and easily becomes an emotional topic. A strong manager learns how to handle these requests with sensitivity. A workplace culture where honesty, authenticity, and transparency thrive will improve employee performance and retention.