When it comes to salary negotiation, often employers are unaware of the employee's thoughts toward their pay until they receive a knock on the office door.
When this happens, consider these tips for managers on handling pay rise requests.
Here are five ways to deal with an employee's request for a pay rise:
1. Treat the pay rise request seriously
Many employers’ initial reaction to a request for a pay rise is to say ‘no’. However, even if the question comes as a surprise to you, it doesn't mean you should act on impulse.
“The first thing to do is treat it seriously,” says Chris Whitecross, management consultant at leadership training firm Arrowdynamics. “How much an employee is getting paid, is representative of the value they think the company has of them and therefore important to their motivations."
“A good manager should have an idea of how the employee has been performing, although it’s also incumbent on the employee to have an idea of the value they provide. Sometimes they don’t see eye to eye, but it’s all part of the negotiation process and managers should be up for that discussion.”
A useful tip is to hear the reasons why an employee thinks they deserve an increase to their salary. Additionally, establish the parameters around the role and your own expectations, making sure the employee understands what is required to earn higher pay.
2. Diffuse the stress of the situation
Asking for a wage increase is a stressful event for an employee. Often they have built up a bank full of grudges and grievances about not being recognised before asking for a raise and their emotional state during the negotiating process can unhinge the situation. For both the employer and employee, it’s best to conduct salary negotiations when neither party is emotional. To help remove the emotion, many organisations offer regular performance-monitoring systems, such as a six-month performance review, where both employers and employees can discuss salaries in relation to work. Alternatively, granting annual bonuses in return for completed KPIs is another way the employees can feel rewarded financial for the work they have performed.
That said, there are times when a salary review isn't possible within the formal review process and managers should indicate to employees at that time if it's the case. In large companies in particular, there are often restrictions during the formal process so any grade raises or adjustments to salaries are handled separately. Employers should look to schedule these meetings at an appropriate date. In addition, avoid handing out extra pay after winning a new contract or customer. Having a regular and transparent process with regards to awards will help manage the build-up of emotion.
3. Consult a salary guide
Make sure you understand what the standard for the employee's role is in terms of pay before entering into negotiations. Compare the position against a relevant salary guide. Often an employee does not know what they are worth and they may already be receiving a wage above the industry average. Using a salary guide can help leverage your argument. Likewise, contact a recruiter or your HR representative for advice on the current salary benchmarks before making a decision.
4. Review the employee's past performance
When it comes to pay hikes, past results count more than promises of future performance.
“It’s always best to pay on past performance, with an option that if the employee does hit the target, then there’s the opportunity to earn more money,” says Whitecross. “That way the employee has something to work towards, and the employer is not paying on hope, which is always a danger.”
In addition, extra pay should come from doing work above and beyond an employee’s defined role, and not simply fulfilling the contract. “One of my rules is that you get a bonus for doing bonus work. If you are getting paid $80,000 a year in salary and you want a bonus, well how much are you doing above and beyond the work that you’re normally doing? Just because you turn up on time and do your job well doesn’t mean you get a bonus.”
Whitecross also recommends including a “teamwork rating” in the criteria – basing pay not only on individual performance, but also on how the employee adds value to the team. In this instance, an employer needs to make it very clear that company values, KPIs and teamwork will help the employee achieve their financial aims.
5. Offer an alternative to more money
Often an employee asks for more money because they feel they are worth it or feel they have not been recognised for their hard work. If the company is not willing or able to fork out more cash, then offering the employee perks could be a better option. These could include allowing the employee more flexible working hours, training or a new position where they feel their skills can be better developed. Keep these alternatives on the table during negotiations.
By treating it seriously, being transparent and balancing the needs of the business, bosses can ensure a positive salary-negotiation process.