After a lot of contemplation, your employee has finally gathered the courage to ask for a pay rise.
Maybe they deserve a raise, but then what's the right amount? Or maybe you're not in a position to give a pay rise or your employee hasn't done anything to prove that they deserve it.
At some point, almost every employer has to deal with this scenario. It can be tough, but it can also be a constructive and rewarding experience, depending on how you handle it.
So, what's the right way to navigate the conversation?
What does the law say?
"As long as an employee’s pay is above the relevant minimum wage and complies with the employment agreement and legislation, an employer can choose how much to pay their employee."
- Ministry of Business, Innovation and Employment
Legally speaking, you, as an employer, have complete control over your employee's salary when they're working for you, as long as you pay them what's agreed upon in the employment agreement.
As long as it's above minimum wage, there are no set standards when it comes to your employee's salary.
It doesn't mean that you should only offer minimum wage to your employees. Remember, they have bills to pay as well and they should get paid what they deserve.
However, for reference purposes, you can use Careers.nz to check the pay ranges of various jobs.
Respond, don't react
Jonathan Rice, the CEO and Founder of JOYN says,
"First and foremost, it's important to realise that your employee approaching you about pay rise is a good sign. It means your company has an open and transparent culture. There are other organisations in which the employees don't even bother bringing this up and secretly look for other jobs behind your back."
-Jonathan Rice, CEO and Founder of JOYN
Employees might ask for a raise out of the blue, that's why it's recommended that you expect it and have your response ready beforehand.
Jonathan advises that there's no need for you to give an immediate answer or feel like you are being held as a hostage.
Fact is, there's nothing much you can do at that moment and reacting, either positively or negatively, will definitely not help. Resist the urge of saying 'yes' or 'no' instantly as your first response sets the expectation for the remainder of the negotiation.
A professional response would be something along the lines of, "How about we book a meeting for next Tuesday?"
By doing this, you'll have enough time to assess the employee's performance and your own financial situation, without appearing careless or annoyed with your employee's approach.
Prepare for the meeting
Employees may, intentionally or not, use this conversation to determine whether or not they'll look to leave the company so, if you want to keep them, preparation is absolutely vital.
Now that you've bought yourself some time by booking a meeting (instead of reacting on the spot), you need to gather all the information required to make a calculated decision.
List all the metrics and key performance indicators (KPIs) that are relevant to establish to what extent the employee is meeting your expectations.
Metrics, goals, and targets vary from role to role, and you should ideally have a detailed job description that explains what success looks like and how it's measured. If you don't have a detailed job description, this is a good opportunity to create one, potentially in collaboration with the employee.
Analyse your employee's performance to decide whether they deserve a raise or not. If they do, determine how much they should be given and if they don't, list down the reasons why.
Saying 'YES' to a pay rise request
"We live in a economy where the employees have more power. If there are good employees, there are companies out there who would pay more.", Jonathan says.
If your employee constantly exceeds your expectations and your company is in a great financial condition - then maybe it is time for a pay rise.
A pay rise can help you retain your most valuable employees, especially the ones who are difficult to replace and do a job that is vital for your business.
Give them the reasons behind the raise
Let them know why they're getting a pay rise.
This shouldn't be based on feelings and you should try and explain the logic behind it.
For example, if the average salary of a Graphic Designer in your area is between $45K to $55K, let your Graphic Designer know that their request for a pay rise was valid along with other reasons, like, performance, working extra hours etc.
Mention the exact dollar amount
Whether it's an hourly raise or an annual raise, let the employee know how much more they'll be getting, along with any other relevant persons who need to know about this, for example, the HR department.
Tell them about your future expectations
Ideally, you should express gratitude to the employee for all their hard work and dedication.
Also, let them know that you're confident in their ability to keep performing and providing value to your company.
Saying 'NO' to a pay rise request
Whether it's your company's budget or the employee's performance, sometimes, it's just impossible for you to give a pay rise.
But you need to remember that saying 'no' requires a bit more of a tactical approach to make sure you don't lose what might be a valuable asset to your business.
Make a considerate decision
If you have chosen not to proceed with the employee's request for a pay rise, convey that it was a considerate decision rather than an impulsive one. As a general rule, explain logical reasons behind your decisions.
This could be your employee's performance, your company's budget, or the industry's standard pay range.
Offer other benefits
"Sometimes, the request for a pay rise is more of a request for recognition than cold hard cash", Jonathan says.
If you can't increase their salary, you can also consider performance-based bonuses, flexible hours, or upskilling and training.
It's important to know what you can offer, even if it's not monetary.
It's highly likely that your employee might end up a bit disappointed after you decline their request. It's imperative that you keep the human aspect in mind and avoid sharing this incident with other co-workers, even the senior ones.
In a nutshell,
- Expect your employees asking for a pay rise
- Wait and think before you respond
- Have strategies for both, 'yes' and 'no' in your mind beforehand