As a manager, an employee likely will ask for a raise at some point. This is especially true when the labor market is tight and employees have significant job opportunities.
Understanding how to handle your employee’s request for a raise is important. You need time to determine whether a raise is appropriate and how much to increase the pay rate.
Mishandling the request can lead to lower employee engagement and retention. As a result, preparation is essential.
Here’s what to do when your employee asks for a raise.
Conduct an Internal Pay Audit
Determine how much your employee is paid compared to their coworkers. Include each employee’s role, education, experience, tenure with your company, and pay. This helps keep your raise review process fair.
If you discover that your employee earns less than a coworker in the same role, ask yourself questions such as:
- Did prior raise negotiations impact the employee’s income?
- Do differences in education, experience, or tenure with the company contribute to the pay discrepancy?
If your employee’s pay is comparable to their coworkers’ pay, take notes on your findings. Keep them handy for when you meet with your employee again to discuss receiving a raise.
Include Your Employee’s Value
Consider how your employee’s knowledge, skills, and experience contribute to your organization:
- Would your company be fine if your employee left?
- How much would your employee’s departure impact business operations?
Use historical data to determine your employee’s value. Include your employee’s non-monetary value:
- Contributing innovative ideas
- Serving as a brand ambassador
- Providing excellent customer service.
Consider the time and money needed to replace your employee:
- How long would the hiring process take?
- How much would the hiring process cost?
- Would your remaining employees be able to fill in until you hire a replacement?
- Would you need a temporary worker until you replace the employee?
- What would your training costs be?
Determine an Appropriate Raise
If you approve your employee’s request for a raise, decide whether to provide a flat rate or a percentage of their pay rate. If you use a percentage, use an average pay raise or cost of living adjustment to determine the increase.
Meet with Your Employee
Talk with your employee about your decision to approve or deny their request for a raise. Include your findings and the rationale for your decision:
- Providing a raise without a reason often creates an entitlement mindset.
- Your employee might tell their coworkers and encourage them to ask for raises.
- Denying a raise without a reason lowers engagement and retention.
Need Additional Guidance for Compensation?
Conducting an internal pay audit and including your employee’s value help determine whether to approve your employee’s request for a raise. Determining whether to give a raise and sharing your reasons why help your employee understand your decision. These actions encourage your employee to remain with your company.
For additional guidance with compensation, use our 2023 Accounting and Finance Salary Survey. If you have questions, reach out to Casey Accounting & Finance Resources.