What do you do when an employee demands more money?

learn more about Penny Morey

By Penny Morey

Opinions expressed by Entrepreneur contributors are their own.

It depends to a great degree on what basis you are paying the employee. That is, do you have a rational compensation system whereby accurate jobs descriptions exist for all positions and jobs are evaluated using basic compensation factors like responsibility, authority, job knowledge, job skills, and unusual working conditions? Do you have a salary grading system whereby individuals are paid within prescribed ranges based on their levels of expertise? Are you adjusting these ranges by utilizing cost of living increases each year and are specific jobs benchmarked using local market data? Do you have associated merit increase and promotional increase matrices that coincide with a solid performance management system? Have you calculated the value of your indirect compensation package (medical, dental, disability, life insurance, retirement plan, paid time off program, etc.) so that you can explain those aspects of compensation to employees with accuracy and confidence?

If the answers to most of the above questions are, “No,” you may not know whether you are paying appropriately or not, which makes your response to the employee demanding more money rather tenuous. This is one reason why employment experts recommend having a well planned compensation system that can stand up to scrutiny by employees.

If the answers to most of the above questions are “yes” and the employee is valuable to the company, use the system and market data on the employee’s job to determine if the employee is due consideration at this time. If so, give him/her that consideration and put together a plan to put and keep him/her on track regarding his/her pay package. For some employees, market adjustments make sense and in other cases performance bonuses might be in order.

If the employee is either not all that valuable or has essentially issued an ultimatum to you (i.e., “If I don’t get a raise right now, I will leave,”) tell him/her that you do not respond to ultimatums and be prepared to lose that employee.

People talk and you may have ramifications regardless of what you decide to do regarding the employee making the demand. That is, if you give a compensation increase, others in similar or same jobs may expect or demand the same. If you do not give a compensation increase,
others may see this as a sign of stinginess that means that they should seek jobs elsewhere.

My best advice:Install a well-designed compensation system, communicate it to employees so that they understand and appreciate it, then use that system to forestall this kind of dilemma in the future.
Penny Morey

Penny is a seasoned human resources executive and consultant with over 25 years of diverse business experience in advising enterprise leaders on employment-related matters.

Related Topics

Editor's Pick

The Dark Side of Pay Transparency — And What to Do If You Find Out You're Being Underpaid
Thinking of a Career Change? Here Are 4 Steps You Can Take to Get There.
A Founder Who Bootstrapped Her Jewelry Business With Just $1,000 Now Sees 7-Figure Revenue Because She Knew Something About Her Customers Nobody Else Did
Everything You Need to Know About Franchise Law
Business Plans

5 Things to Know and Do Before Writing Your Business Plan

If you need a business plan, there are certain things you need to know and do before you sit down to create it. In this article, you'll learn five things to complete before writing your plan to ensure you get the best results.

Business Ideas

55 Small Business Ideas To Start Right Now

To start one of these home-based businesses, you don't need a lot of funding -- just energy, passion and the drive to succeed.


Streaming TV Is the Future of Advertising — Without Breaking the Bank

Today's consumers expect personal, impactful ads. There's an advertising method that can get you there for half the price, making it the next frontier in digital advertising.

Growing a Business

Scaling Made Easy: How to Scale Your Business like a Fortune 500 Company

Once you have the night-vision skills of Fortune 500 restaurants, scaling becomes effortless. Here are 3 ways to scale, hidden in plain sight.