According to the Bureau of Labor Statistics, U.S. workers quit their jobs in 2019 at the fastest rate on record. The number one reason people voluntarily change employers, not surprisingly, is for a bigger paycheck.
Ironically, it could cost companies more to recruit and hire new talent for a vacated position than it would to retain existing employees by paying them more money. Most experts agree it takes at least half and as much as two times an employee’s salary – or more – to replace someone who leaves a position.
Those estimates are based in part upon direct costs such as advertising, recruiter fees, interview expenses (i.e., travel, reference and background checks, and administering drug or other pre-employment tests), relocation expenses, and signing bonuses. The estimates also include indirect costs, such as extra time other employees spend interviewing candidates, preparing training materials and schedules, conducting onboarding and training, and supervising the new employee’s learning curve, as well as benefits enrollment and administrative processing. Then there’s the fact that it can take a month or more for a new employee to begin producing at a high level.
So, employers should carefully consider their responses when employees ask for a raise, an increasingly common scenario in today’s tight labor market.
If you find yourself in the sensitive position of having to handle an employee’s request for more money, follow these guidelines to ensure the best possible outcome for you, the employee and the company:
It’s important, albeit difficult, to remain neutral when an employee makes the ask. Assuming the worker is a valued member of your team, however, your priority is to try to reach a mutually agreeable conclusion. Don’t say the first thing that comes to mind, whether positive or negative, and refrain from agreeing or disagreeing with the employee. Listen more than you talk during the initial conversation.
You want the employee to know you are taking his or her concerns seriously, so the first action is asking the employee – without being confrontational – to explain why a raise seems in order. Good listening skills during this meeting also may reveal the worker is open to options besides a raise – a one-time bonus, extra vacation days or a more flexible schedule, for example.
When you fully understand the employee’s point of view, express appreciation that he or she came to you. It’s reasonable that you would need some time to carefully consider the request. Provide a timeframe – perhaps a week – when the employee can expect to hear back from you.
Gather more information during this phase of the process. Look at salary data for your industry and determine if the employee making the request is making less than he or she would somewhere else in a comparable position.
Raises make sense when employees can effectively demonstrate their salaries are not on par with their experience based on industry averages or internal pay scales. Reasons that don’t necessarily merit a raise include an employee’s personal financial situation or a recent heroic effort on the job, like the successful management of a short-term special project.
Also take into account the employee’s value to and tenure with your company. Obviously, you want to do what you can to retain star performers and keep them happy on the job.
Once you decide whether or not to grant the employee’s request, it’s time to deliver the good or bad news. Either way, explain you reached the decision after careful consideration and with input from others, such as managers and human resources personnel.
If the answer is yes, let the worker know your leadership team collectively determined the raise is warranted. This helps communicate you have taken the request seriously, but that employees won’t get raises simply by asking for them.
If, on the other hand, you have to deny the request, don’t mince words. Explain that you seriously considered the appeal, but determined the current pay rate is appropriate based on how it compares to people in similar positions within and outside the company.
Or, if your company is simply not in a financial position to offer a raise or to provide it at the requested level, let the employee know that, too. You don’t have to go into detail about the specific numbers. Try to convey that you recognize and appreciate the worker’s efforts but just can’t do so with a pay hike right now. This also is the time to discuss other options – uncovered in your initial listening session with the employee – that may be feasible for your company.
While surveys cite all sorts of factors that lead to employee satisfaction at work, cash is still king. So, it’s important to treat raise requests with respect.
As you know, high-performing employees are your greatest resource. Do all that is reasonable to retain them, including, if possible for your company, adding dollars to their paychecks. And if that’s not doable, ensure they emerge from the process of being denied a raise with their dignity intact and still feeling like they are appreciated.