Managing an employee pay rise request can be a challenging task for managers in any industry. However, it’s not uncommon for employees to ask for more money. Whether it’s because they feel they deserve a raise for their hard work or because they’re struggling to make ends meet, it’s important to handle this situation carefully.
It’s essential to distinguish between a pay rise and a promotion. A pay rise involves an increase in salary for the same roles and responsibilities, whilst a promotion typically entails additional responsibilities and new responsibilities.
Strategies for handling an employee pay rise request
Listen to their request
When an employee approaches you asking for a pay rise, you must allow them to fully explain their request and the reasons behind asking for a raise. It’s essential to maintain a professional and non-judgemental tone throughout the conversation. Actively listening without interrupting not only fosters trust but also shows respect for their feelings. Keep in mind, this conversation may be challenging for the employee.
Review their performance
Look at the employee’s contributions to the business. Analyse their performance over time, including measurable results, feedback from colleagues or supervisors, and whether they have consistently met or exceeded their role’s expectations. Additionally, consider their tenure with the company, as long-term employees demonstrate loyalty, which is vital for fostering stability and trust within the workplace. This loyalty can also enhance your company’s reputation, helping to attract new talent.
Consider the market
Know the market rate for your employee’s position and consider their experience and the industry standard. Since employees are likely aware of this information, avoid offering an amount that is below market value. You’ll want to consult resources such as salary guides, including Fetch’s 2024/2025 Salary Guide, which will provide you with accurate benchmarks.
Check your budget
A crucial aspect is determining whether the company can afford to grant the pay rise. While pay rises are beneficial for employee retention and morale, they must align with the organisation’s financial health. Keep in mind that replacing an employee can be far more expensive than retaining them. According to the Australian HR Institute, the cost of replacing an employee can be up to 1.5 times their annual salary, factoring in recruitment, onboarding, training, and the potential loss of productivity during the transition period.
Deliver the outcome
The approach will vary based on the decision. If the raise is approved, specify the amount and the effective date, and express appreciation for the employee’s contributions to the business. If the request is denied, provide clear reasons and be transparent about your decision. Make sure you address any concerns they’ve raised and provide constructive feedback or an action plan for future salary discussions. You might also consider offering alternative benefits, such as flexible hours or extra annual leave.
Refine your ongoing process
Managing pay rise requests should be part of an ongoing, structured process. This can be done in the form of annual performance reviews. This will help reduce uncertainty and provide a space where employees can openly discuss their career progression, compensation, and performance. A transparent process is proven to improve employee retention.
Final thoughts
Your employees are the face of your business, interacting with clients and driving daily operations. Keeping them motivated and satisfied is crucial. According to a recent Gallop report, highly engaged employees are 17% more productive and 21% more profitable than their disengaged peers. This highlights that motivation and engagement are closely linked to higher productivity levels.
Investing in employee engagement not only enhances productivity but also fosters a positive work environment. This, in turn, helps attract top talent and supports long-term business success by creating a more committed and effective workforce.
