So You Got Asked for a Raise?

“My employee asked for a raise. Should I do it?”

Sound familiar? This question has been a popular one lately.

Are employees asking for raises more because we are in such a competitive job market?

Are you underpaying your employees?

If you don’t give the raise, will your employee quit?

Should you just give them what they ask for?

How do you know what is fair?

These are all very valid concerns! Of course you want to reward your valued employees! At the same time, you have a business to run, bills to pay and a budget to delicately balance. Thus, this question can be a real pickle.

Let’s dive into some important questions to consider if you are faced with the “raise” dilemma.

Has the value of the role increased? And if so, how much?

When you hired the employee, you determined the value of the role in the marketplace, based on the job duties and what the market bears.

For example, if you hired an Office Manager one year ago and determined the value of the role was $60,000, you decided on that number because it was in-line with the going rate salary of comparable roles, the job duties necessitated that much in return value to your company, and it fit your budget.

Now, a year later, let’s say that your employee is asking for $10,000 more in salary per year.

Ask yourself: Has the value of the role increased?

The value of a role increases for two reasons:

1.     The employee has taken on more responsibility and thus their value (return value/benefit) to your company has gone up.

2.     The market bears a greater salary. (A market increase in average wage is almost always a product of supply and demand for key positions and should not take inflation and cost of living into consideration). More on that in a minute.

If the value of the role has gone up because of factors outside of market conditions, the next question is by how much? This is a great question to explore with your employee. Ask him/her to help you understand what he/she is doing to support the additional return and benefit they are now bringing to the company. This is also a great awareness tool for an employee to understand how a business leader makes these difficult decisions. (Also take note if the employee is not able to answer this question.) 

Are you being market competitive?

If you hired the employee at a starting salary lower than the market rate, it is absolutely time to reevaluate. If you are not providing periodic cost of living increases in accordance with inflation, you may also be behind the wage curve and need to give that raise.

The bad news? Let’s say that Office Manager who was making $60,000 can command $70,000 in the marketplace now. Meaning, she can find another job very easily that will pay her a much higher wage. This could be because there is all of a sudden a shortage of qualified Office Managers in the market, or a spike in the demand for that particular skill set.

You are perhaps at risk of losing that employee and you have a decision to make about where the mid-point is between bringing the wage up to “market” and letting a good employee leave, or be left at risk to be approached by another opportunity. Taking into consideration, also, that the salary cost of replacing that employee for a similar skill and experience level may very well now be $70,000. (This article is purely in the context of raises and pay, however I am very much a proponent of holistic retention and that employees leave a company for many more reasons than money alone.) 

What is motivating asking for a raise? What’s Important to the employee?

I am going to be very blunt about this: Outside circumstances (ie: Spencer now has a wife and a baby at home and the bills are piling up) are not your obligation. As a business leader, this is an easy trap to fall into. Don’t. These kinds of situations can give rise to a pay disparity between your employees over time, for reasons beyond the business, that put you at risk. 

Perhaps it’s not really about the money, and the employee is looking for something more. Have an open discussion to find out what the motivator behind the ask is. Perhaps you can innovate together for a solution that meets your budget and the unique needs of the employee. Flex time? Pet insurance? There are limitless solutions to meet an employee’s individual needs. If the bills are piling up at home, maybe access to a financial advisor who can help fix the problem at the root is of more value than a pay increase.

The bottom line:

The “raise” question is a complex one that requires careful thought and evaluation. Saying “no” may not be the best or most fair answer. Simply saying “yes” may put you at risk of, among other things, letting your employee dictate how you run your business, with regard to pay. Start by asking the right questions. It is possible to find a sweet-spot that is fair and fair to both the company and the employee.