Recruiting & Staffing
When to Give Your Employee a Raise
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By: Melanie Bacallao
Jul 31, 2020 • 10 min read

Rewarding Hard Work

Praise can come in different forms, so if you see an employee is making your company successful, why not give them a raise? It can actually be beneficial to the employer as well. It saves you from high turnover rates while retaining the employees who have performed tremendously. Regardless of the size of your company, a pay raise can amp up success rates and benefits that will endure in the long run.

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Introduce a pay raise if you see any of the following

  • High performance. A determined person who tries hard to achieve goals or even surpass them. They typically have an engaged mindset and are hyperfocused in their work.
  • Breaking ranks. Though this ties in with high performance, breaking ranks means that the employee has been immensely successful in a short period. Did they just get a big break despite being three months into the job? Give a raise to promote their success!
  • Inflation. Sometimes, the cost of living will rise. To keep your employees comfortable, you should raise their pay according to inflation.
  • Lengthy service. It’s not unusual for a company to reward raises either annually or periodically. Recognizing their years of loyalty will make employees feel grateful and are likely to stay for much longer. 
  • Improvement. Another subsection of high performance, growth in skills, is another sign to look for when factoring for a pay raise—for example, an employee who improved their communication skills or gained new certifications.
  • Increase in workload. If your employee is being given more workload than they usually handle, consider raising their base pay. Otherwise, they may feel too overworked and underappreciated for what they do. Increased workload is commonly seen in smaller businesses due to shifting roles.
  • Unique talent. Are they hard to replace? This type of talent is typically exclusive to one individual. You can encourage them to stay at your company by lifting their pay. 

Why should you give a raise?

Admittedly, many employees tend to leave a company due to a variety of reasons  — pay to be the primary concern. Not acknowledging an employee’s efforts through a compensation bonus will increase your company’s turnover rate. That’s just how it is. An employee leaving would actually be more expensive on you than giving a pay bump. You would need to allocate lots of resources to find a new employee, which may not even be guaranteed. Even if you get a new hire, your company would also need to focus on training them. Therefore, keeping your ex-employee who’s done well would be a lot less troubling and expensive. 

However, once you give your employee a raise, the following will happen

  • Boosted morale and productivity
  • Increased performance and production
  • Positive outlook of employer and company
  • Prolonged loyalty and service

How should you give a raise?

There are many determinant and subtle factors when it comes to increasing compensation, even by a dollar. Businesses typically give raises through a scheduled period of time, such as annually or quarterly—other times they give raises when they do see an employee’s exceptional performance, or at random.

Here are things to consider looking at when determining a raise

  • Payroll software. A software that keeps track of what you’re currently paying employees, plus dates of their last raise, is useful in calculating a raise.
  • Performance reports. Note which department or people have been giving the most success or work. Having a key performance indicator (KPIs) on each employee can help you narrow down your options.

Pinning down a good raise can be difficult across professions. A typical raise is 3%, but you can work your way above it. Overall, it depends on the company’s budget, individual employee, performance, and the like.

When should you give a raise?

Employees already expect a raise every once in a while, at least — but when? Timing is crucial when considering a raise. This is especially evident when you’re not aware of them looking for other jobs behind your back. While giving periodic raises is a popular choice, it does little to boost one’s morale or productivity. The employee would know that their raise is just based on a schedule rather than their own performance. 

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Here are ways to approach when to give a raise

  • Schedule a meeting. Make time to meet with the individual. This gesture already means a lot to the person, and it will prove that you’re personally acknowledging their efforts.
  • Look at shifts in the industry standard. Competitive wages differ for each industry, and they also change in time. It’s essential to keep up with competitive pay by referencing the role’s industry standard.
  • Don’t wait for them to ask. If your staff member does this, it means that they don’t feel like you’re really acknowledging their efforts. Giving them a raise without them asking will prove that you’re invested in their work.

Alternatives to Raises

If you’re unable to currently provide a compensation bonus to your employee, there are other ways to reward their work. Work-life balance plays a vital role in morale and productivity. 

Alternatives you can offer

  • Insurance (health, dental, vision, etc.)
  • More vacations days
  • Leniency policy (uniform, pets, etc.)
  • Free snacks and games
  • Paid leave
  • Tuition reimbursement
  • Childcare
  • Work from home
  • Vouchers or discounts
  • Get-togethers

Additionally, along with a pay raise, you can also include one or multiple of these alternatives as another bonus. It will further increase morale, productivity, happiness, and more. However, don’t just solely rely on alternatives as a substitute for pay raises. Compensation raises, and free snacks are not equal. If you have trouble deciding on alternatives, you can always ask your employees what they really need.

Praises and raises

Pay raises will save you from frustration, trouble, and expenses — all while retaining your best staff who will continue to perform at their peak. Remember that your employees are what keeps the business running seamlessly. Praises and raises are the best way to treat your staff the way they deserve.

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