How do I calculate a pay increase for an exceptional employee?

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Not knowing more about your business or situation, this is a tad tricky. That is, calculating appropriate pay increases for a large organization is done using standard compensation tools such as job descriptions, salary grades, merit matrices and so forth. From your question, I am having to assume that you have none of this structure at your disposal.

If your business is small, you are essentially determining the value of the employee to your organization. One way to do this is to do some research.

How much would it cost for you to replace this individual, taking into consideration all that s/he does for your enterprise? You can get a feel for this by visiting websites such as,,, and inputting the necessary information to see what the various ranges are for the kind of job the person is assigned. These sites also offer information on average salary increases and so forth. You need to remember that often the data for these sites is provided by people in the jobs versus by compensation managers, so its accuracy may not be 100 percent. But it will give you an idea of the value of the job on the market in which you do business.

Salary is satisfies versus motivates, so keep that in mind. You want to be sure to give enough of an increase to reward the person sufficiently and let him/her know that s/he is valued in proportion to his/her contribution to the success of the company.

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