How to Manage When an Employee Asks for a Pay Rise

There will be a time in every manager’s working life when they will have to deal with a request for a pay rise from an employee. In fact, it is likely it will happen more than once. This is a sensitive topic which should be handled sensitively and given due consideration. This is because one of the main reasons that employee’s leave organisations is to ‘seek higher pay elsewhere’ according to a survey by PayScale, a global salary research organisation.

So, if you want to keep your top talent, you should consider each pay rise request carefully. And, if there is evidence that the employee is being under compensated, then you need to take some form of corrective action. If you are unable to offer increased compensation then you need to find some other way to show your appreciation. Below, we have set out some guidance on how to handle a pay rise in the most effective way possible.

Be open and listen

Allow your employee to explain their reasons for asking for a pay rise. It could be based around the cost of living, or the fact that the employee has gained increased responsibility either suddenly or gradually over the course of time, without it being formally recognised. It might be that they have looked at some online salary surveys and assessed the market worth of their role. Whatever, the reason it is important that you listen clearly and understand the reason so that you can actually address the situation. Do not try to respond to the request immediately, (however tempting it may be), just adjourn the meeting and tell the employee that you need time to review their request and you will come back to them later, which you must, otherwise you risk being seen as unresponsive and inconsiderate as well as a low payer, which will compound an already difficult situation.

Do proper due diligence

If the employee cited any sources that they used to assess their market value, check them and check both their reliability and credibility. Is the site reputable? Does it say how large the sample is? Does the survey take into account both industry and location? For, example roles in major cities or niche sectors can pay more than the same job in a smaller town or in a more mainstream sector. Ensure the employee is comparing ‘apples with apples’.Also, do your own research. I would recommend that you used a professional salary survey from a specialist provider, as at least you know you will have credible data. Hays does a fairly robust free salary survey of pay in most sectors in Australia and New Zealand. This means that you can establish the market rate using objective and reliable market data.

You will also need to assess your employees salary against his/her internal peers. Will giving this person a pay rise, elevate their salary above their peers?

Review the situation

With all the data in hand, you now need to review the situation, and ask yourself, firstly, “is the employee actually being underpaid based on the evidence you have gathered”. If not, then you have your answer and you can proceed to the next step.However, if you feel the employee is being underpaid, you will have to consider what impact that a pay rise will have on your internal pay structure, for example, will other staff at a similar grade be expecting pay rises, leading to internal inflation?

Also, is the employee’s performance up to standard, because if they are not performing then you are arguably not getting your money’s worth anyway, and they may not be deserving of a pay rise. If this turns out to be your reason for refusal, ensure that you have supporting evidence.

Having considered all this in mind, you will ultimately be constrained by your budget. What can you afford? If you do not have the budget then this is a perfectly valid reason to refuse a pay rise. However, if the employee is in a position where their increased performance will directly increase revenue, you could offer them a bonus based on them meeting a certain level of performance, which will mean the business has the necessary budget to afford the raise.

Employee Meeting

Having weighed up all the relevant factors and made a decision, you should meet with the employee and explain both your decision and decision making process, whether your decision is positive or negative. If it is positive, ensure to explain how much the raise is and be sure to explain the reason for the final number you decided on. If negative, ensure you let them know the reason for refusal, e.g. performance, economic or budget related.