When I ask people at all levels in organizations what would make them happier on the job, the majority say they want more money. Nonetheless, entrepreneurs shouldn't be too quick to give employees the requested raises.
Almost everyone needs more and more income to deal with the realities of today's economy. But before you rush to your checkbook to increase an employee's income, consider these factors:
1. Why does this employee want or deserve a raise? Aside from the fact that most people want to increase current spending or savings levels, you shouldn't increase a salary based solely on the need or desire. Of course, if great need is the case (and if you can afford to increase the salary), then, of course, allow your humanism to shine through. Otherwise, ask your employee to present significant information and examples to convince you of his value to the company and therefore substantiate the reasons for the raise.
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Make sure you know all key facets of that person's job description and the supervisor's interpretation of it as reflected on the employee's performance appraisal form. Since this document reflects management's evaluation of employee productivity, this form should serve as the basis for your review of the salary increase request.
2. Ask yourself how valuable this individual is to your company. Objectively evaluate how she has contributed to the success of the team, department or business. Analyze how she has grown through any additional training, coursework or achievements in key areas or projects. Think about the amount of additional time she typically spends on projects or assisting others. In other words, exactly how and why is this employee valuable to your company?
3. Compare this employee's salary to others in the industry. Find out the range of what similar colleagues in your business (and any competing companies) are earning. Look for similar backgrounds, responsibilities, experience and expertise. Based on this information, you can consider the percentage increase of the request. Sometimes, if the percentage is high, you might balk. However, you need to delve further into the situation to determine if the current salary is below par or below the equity level. Most importantly, this knowledge will provide you with rational data with which you can compare the equality of the current pay with that of others. Armed with this crucial information, you add significant power and substance to your response to the salary increase request.
What happens if you conclude the request is unwarranted? Don't stop there. Use this opportunity to discuss the employee's career path. First, explain exactly why the request was rejected. Common excuses are: "We're at the end of the budget cycle," "We don't have much money left in the budget for unscheduled raises" or "You don't deserve a raise." If your response happens to be, "You don't deserve a raise," discuss frankly and specifically with the employee what he can do during the next assessment period to improve.
Whatever the reason, use it as crucial information for this employee to plan for his next request. Timeliness may be the answer in the future. Often, promotions and salary increases are discussed only during the performance appraisal time, the end of the fiscal year or the start of the next.
Help your employee understand what additional experiences, knowledge, skills, abilities or responsibilities she must gain to be in a better position to request a salary increase next time. Be concrete. When the employee grows and develops in almost any area, you and your company grow and gain also. So understand that this partnership benefits both management and non-management.
When you objectively discuss your thoughts and evaluate the individual, you are demonstrating a realistic and rational plan the employee can follow to succeed. Most importantly, you are also showing concern for the well-being of this individual. Whatever the outcome, the employee should feel that she has experienced an objective process where she was listened to and responded to, and developed a clear plan of how to get her needs met in the near future.
What more could anyone ask for?
David G. Javitch, Ph.D., is an organizational psychologist and president of Javitch Associates, an organizational consulting firm in Newton, Massachusetts. With more than 20 years of experience working with executives among various industries, Javitch is an internationally recognized author, keynote speaker and consultant on key management and leadership issues.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.