Pay Increase: What’s the best way to handle an employee’s request for a pay increase?

Jan 31, 2013

Deciding whether to provide an employee with a requested pay increase, outside the regularly scheduled compensation review period, relies on several factors. There isn’t a one-size-fits-all solution. Questions to ask include:

  • What is the company policy as it relates to pay decisions and increases? Some companies may not have policies. In that case, it would be helpful to consider how past requests for increases have been handled.
  • What is the company’s compensation philosophy? Whether formally written or not, most organizations have developed an opinion or culture as it relates to compensation decisions. This could be as simple as “We do not grant any increases outside of our normal merit increase schedule” or “We review each request on the basis of its own merit.” The decision to grant the raise should be consistent with the company’s philosophy.
  • What is the job worth? Think of the job’s value compared to other roles. Every job has a point where the wage becomes unreasonable as it relates to the tasks and responsibilities of the job, or above the job’s salary range. For example, it would be unreasonable to pay a cashier a wage equal to a supervisor, whose job carries more responsibilities.
  • How does the employee’s pay compare with that of others in that role? Is he or she in the same salary range as other employees who have similar tenure, performance, experience, education and skills in the same job? Employees in the same or similar jobs should be paid the same, or the employer may face legal problems.
  • What is the value of the employee to the organization? It might be worthwhile to consider the request if the organization has already invested resources in developing this employee as part of succession planning or if the loss of this top performer could have a huge impact on the organization. Understand exactly what the employee is looking for and the consequences of not providing what they are asking. For example, top performers often may be seeking greater responsibilities, job titles or promotions in addition to pay increases.

HR professionals should discuss these factors with the employee’s manager to help the manager quantify the pros and cons in this situation. Once a decision has been reached, it should be shared with all relevant decision-makers and ultimately communicated to the employee verbally as well as in writing. Communicating why the raise is or is not granted is important to help the employee understand and accept the decision.

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