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When Should You Give Your Employees a Raise?

Author: Dave Rietsema - Matchr CEO

The best asset of any company is the employees. While employees leave for a wide variety of reasons, the pay is a major cause of employee turnover. Employees who feel that they aren’t valued by the company or paid enough for their positions tend to search for other jobs. It’s essential to recognize employees as the valued resource they are, and how better to do that than to give them a raise?

Giving raises isn’t always possible, however. How the request is handled, whether it’s accepted or denied, can determine an employee’s future satisfaction with your company. But how do you know when and how to give an employee a raise?

Criteria for Giving Raises to Employees

There are several factors that you should consider in your decision to give an employee a raise:

  • Performance
  • Cost of living
  • Merit
  • Length of service
  • Expectations
  • Company profits

Performance

An employee’s exemplary performance is always a good reason for a raise. Good performance deserves to be recognized and rewarded. Providing merit-based pay raises is also a good way to motivate employees to perform well and to go above and beyond.

Cost of Living

The cost of living rises every year. Even if an employee doesn’t earn a raise on merit, increasing costs of living should be taken into account. The pay an employee starts with won’t have the same buying power for long. What was once a good salary or wage may no longer be enough. If your employees feel that they aren’t making enough money, they may seek employment elsewhere.

Merit

If an employee has learned a new skill, that employee is now more valuable to your company. That employee is better able to perform their job, may be more efficient, and is better qualified for a promotion. Calculating the employee’s improved skills into a pay raise can encourage them to continue to use those skills at your company.

Length of Service

Giving raises to employees based on how long they’ve been with your company can help encourage loyalty. Employees will know that their experience is valued. Plus, in order to get that raise, they know they have to stick around. This can help reduce turnover.

Expectations

Meeting expectations doesn’t necessarily warrant a pay increase. However, if the expectations for an employee change, you should consider raises at work. If an employee has to take on more work and more responsibilities for the same position, those increased expectations should be reflected in their pay.

Company Profits

If your company has grown and revenue has increased, consider sharing that profit with your staff. After all, your employees are the backbone of the company. Their efforts and performance contribute to how well your company does. Those efforts deserve some recognition so that employees feel that their contributions are valued. Employee raises are a good way to show that recognition.

When Should You Raise Salaries?

Some companies have annual employee raises. Others offer pay raises only when the employee has earned it based on merit or performance or some other criteria. Still others offer raises quarterly. You may find that what works best for your company is a combination of scheduled raises and random, merit- or performance-based raises.

A mixture of the two methods can ensure that employees are compensated for things like the length of service, increases in the cost of living, and company profits that are more regular, while also acknowledging excellent performance and new skills immediately after they occur.

Other Considerations for Giving Employees Raises

When you’re considering giving a raise or planning regular raises, there are some factors to keep in mind. Raises are important to keeping your staff motivated. They also help reduce turnover. But it’s also essential to make sure that the process is done correctly.

Give Raises to Retain Your Best Staff

Giving raises to employees can help reduce turnover. While there are a variety of reasons employees leave, pay is a major factor. If employees can find better compensation elsewhere, they may seek alternative employment. Raises, especially merit or performance raises, will help them feel valued by your company.

Look After Your Company’s Introverts

Not every employee will be outgoing enough to ask for a raise themselves. Introverts perform equally valuable services for your company but may be easier to overlook. Even if someone’s contributions aren’t as obvious because they’re less vocal, it’s still important to acknowledge their accomplishments.

Determine How Much Raise to Give

On average, most raises are about 3% of the employee’s current salary. However, raises can range from 1% to 5%. The percentage depends on whether or not it’s an annual raise or a raise for merit or performance. If the raise is for the cost of living, then you’ll need to calculate how much you can afford to pay across the whole company. For performance, the raise can depend on the ROI of that performance.

Review Your Compensation Package Regularly

Pay is an important factor in attracting new talent and in retaining your current staff. Especially if you’re noticing a pattern of employees leaving, it’s important to regularly review the benefits and pay offered. Perhaps starting pay and benefits need to be adjusted. Perhaps you need to offer more frequent or larger raises. It’s important to regularly review so you don’t have a period of high turnover.

Are you looking for a HRIS solution to manage your payroll and benefits? We can help you find the right software for your company. Visit our vendor match page to get started.

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