It’s that time of year again when employees start to gear up for that hard-earned pay rise.
But while it’s an exciting time for high-performing workers, the pay review period can often be a complicated and delicate process for managers and employers.
So what is the best way to handle a pay rise request?
If a salary freeze has been imposed across the business, managers can comfortably refuse pay rise requests on the basis of company policy.
However, according to Ruth Morgan from Career Consultancy, in this situation it’s important for managers to consider what non-financial rewards can be offered to ensure the highest performers and most valued employees are retained.
“It’s always good to explore what some of the other drivers are for staff. These days people are looking for a bit of that work/life balance, so it might be that you can offer additional leave or there might be some way that you can invest in their development,” Morgan says.
“If the company is unable to offer a financial increase, it’s a case of tapping into what the individual is looking for or what’s motivating them.”
If financial restrictions aren’t an issue, Morgan says the pay review should be a factual discussion about how the individual has added value to the organisation in the last financial year.
“You should always welcome those discussions. Don’t steer away from them because it’s a great opportunity to get people looking at their performance from a commercial perspective,” she says.
While the employee needs to demonstrate their value, the manager must keep the discussion focused on how the employee has impacted company profitability or productivity.
“What has been their influence? Ask the staff member to prepare a business case before you meet and work out what they’ve achieved that is above the expected KPIs of their role,” says Morgan.
“This takes the personal aspect out of it so it becomes very black and white, and removes a bit of the emotion. Then, next year they know what facts they need to have ready to present their business case.”
Some employees will come into their pay review meeting with low expectations. Others will come in expecting a huge increase in pay simply for doing their job. Managing the sometimes unrealistic expectations of employees requires a careful balancing act.
If an employee requests a $20,000 increase based on comparative market data with respect to their current role, Morgan says managers should consider exactly where the individual sits within the market.
“Where is that person’s expertise benchmarked against the market? Yes the market might be paying that amount but there’s always a range within that level, so consider where that person fits within the market,” she says.
Managers also need to treat this scenario like insurance, according to Morgan. When an employee asks to be paid in line with the market, Morgan says managers need to consider the replacement cost of losing that person, including downtime to recruit, the recruitment cost and potential loss of clients or output.
“You might not necessarily have to meet them all the way, but in factoring what you can afford to pay you need to consider what your replacement cost would be if you lost that person to one of your competitors,” she says.
“If the budget doesn’t allow for that sort of pay increase then I’d certainly offer a compromise and show an investment in them by increasing their salary part-way, and perhaps building in a review in a certain number of months or offering an incentive… so they know it’s not just a case of getting an immediate $20,000 pay rise. They’ve actually got to prove themselves.”
Even if companies have strict confidentiality policies against the sharing of salary information, it happens anyway and managers end up hearing pay rise requests from employees based on what their colleagues are earning.
In this case, Morgan says to keep the discussion focused on the individual and their performance.
“Always bring it back to performance achievements, but if there is an obvious gap in experience that is apparent through output then it does need to be explained to them,” she says.
“Keep it factual, bring the discussion back to them and try to stick to how they’re performing within their role and what they need to do to step up.”In any case, Morgan emphasises the importance of sending a consistent message during all pay reviews.
Managers should ask the same questions each time an employee comes knocking on their door to get them to justify what they have achieved and why they feel the increase is warranted.
“Get employees to recognise that years of service don’t warrant an automatic pay increase. It’s a business case which needs justification.”
This article first appeared on Women’s Agenda.
Women’s Agenda is a publication for career-minded women who want to stay ahead of the conversation.
