what to do when an employee asks for a raise

Summary

what do you do when an employee asks for a raise and you’re not ready to give them one. or worse, they shouldn’t get one. this is the case I want to deal with, not the easy case where someone clearly earned it and you just need to act.

1. set the stage with quarterly or biannual reviews. quarterly for new hires, biannual once the team is bigger. one of the standing questions, do you feel that your current pay is adequate for your level of performance. not “do you think you should be paid more,” because the answer to that is always yes.

2. ask them to rate themselves. 1 to 5 or 1 to 10. you rate them too. if they say 10 and you say 7, the conversation forces itself open. why 7. what would move them to 8, 9, or 10. now it’s specific.

3. raises in our companies are value-based, not tenure-based. you don’t get a bump because you stuck around. small cost-of-living adjustments, fine. but a real raise has to track to real value delivered. that’s the deal up front.

4. high salary comes with high expectation. if someone pushes for and gets a higher number, they have to know the bar moves with the comp. once I’m paying you a top-of-market salary, friendships aside, I’m comparing what you produce to what else that money could buy in the market. that’s the math.

5. teach the team what value actually means in your specific business. usually the highest-paid roles are the ones bringing in customers without me having to help. that’s the definition. other roles cap out lower, not because they don’t matter, but because the leverage is different.

if you don’t communicate any of this, you end up with the neglected great employee who quits and the demanding mediocre one who keeps showing up. neither is good. quarterly reviews, hard questions, clear standards. try harder.

Transcript

the situation we’re not solving

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So if you’re ready to try hard, subscribe. If you like what you’re hearing, please share and enjoy. What do you do when an employee asks for a raise, but maybe you’re not quite ready to give them a raise, or quite frankly, maybe they’re just not worth it. What do you do in that situation? This is the better human business podcast.

I’m Jerred Moon. And I want to talk a little bit more operationally about business today. When someone asks for a raise, and I’ve given raises without people asking, I’ve given raises when people asked. I’ve also fired people and people have quit when they didn’t get a certain pay amount. And so what do you do in all of these situations?

How do you deal with it? And obviously I’m not dealing with the question of if someone asks for a raise, and maybe they do need a raise, maybe you haven’t given them a raise in a really long time. Maybe it’s been a couple of years and you need to give them a raise. Maybe they’re, I’m not dealing with that.

So maybe you just do, maybe you need to match cost of living, or maybe you have a very valuable employee and you just need to eat a little bit of profit and put that into the employee. Sometimes those decisions can still be hard, but ultimately that’s just dealing with, okay, I need to give up a little bit more money and put, sink a little bit more profit into my team.

Those can still be hard decisions, but they’re not that hard. What I’m dealing with more today is if someone asks for a raise, but they don’t really quite deserve one. Maybe they already had one recently, or maybe you’re just not seeing the value yet. They’re a value as a team member, but they’re not valuable enough to give a raise at this point in time.

What do you do? The first thing I like to do is to set the stage for this to happen in either a quarterly or biannual review. Now with new employees, I like for it to do reviews with employees every single quarter, but that can get to be quite a bit if you have a lot of employees. And to be honest, meeting a quarter can, every quarter can seem like quite a bit.

the quarterly review

So biannual is also a great way to do this. So meeting twice a year and one of the questions that I do like to ask is if they feel the pay that they’re currently, they currently have is adequate. And the reason I like to do this at least twice a year is just to see if they feel like they’re adequately paid.

You don’t want to phrase the question as, do you think you should be paid more? Because there’s no one who’s going to say no, like most people think that they’re way more valuable than they are. So you don’t want to necessarily phrase it that way. Just do you feel that your pay is adequate for what you’re currently doing, your level of performance?

That’s the first thing. So at least the conversation is open because you don’t want to get a frustrated employee who you never give a raise and they’re really good, but you just forgot because we’re not constantly thinking about how much everyone’s being paid and you just forgot and then they quit because they feel like they were neglected.

You don’t want to end up in that situation. So that’s what that question does at least twice a year. But another thing I like to do in these reviews is ask quite simply, what would you rate yourself as an employee? And you can do this on just simply on a scale of one to five. Where do you rate yourself?

Scale of one to 10, where do you rate yourself? And then letting them know, hey, I’m going to answer this question too in our review. So if you think that you’re a 10 and I think you’re a seven, there has to be more of a communication here. I have to tell you why I gave you a seven and you have to tell me why you think you’re perfect.

And so it opens up the door to if someone’s like, I’m not adequately paid, I’m a 10 out of 10 employee and I’m saying you are adequately paid and I rate you a seven and I have reasons X, Y, and Z, why you’re not an eight, why you’re not a nine and why you’re not a 10 or why you’re a three or four, not a five, depending on whatever scale you want to do.

So now that opens up to the conversation to be like, hey, maybe you have a lot more to work on than you think. Okay, so that’s one thing that you want to do is letting people know where their value actually lies. Because there is a certain level of, hey, this is another human being, there’s some loyalty involved, but ultimately as you push to higher and higher salaries and employees have to know this too, as you push and ask and advocate and say you are getting a higher salary, you want a higher salary.

do you feel adequately paid

If you do end up with that higher salary, that also you’re now in a situation where you have to prove that you’re worth that salary constantly, especially as an entrepreneur in a small business. If you’re getting paid a high salary, friendships aside, relationships aside, if I’m just looking at numbers, I have to make sure the salary that I’m paying this employee is worth it.

They have to earn that. If they ever get lackadaisical, they’re not doing their work, they’re not showing up how I expect someone of this high salary to be. Now it goes to the marketplace, right? If I have this high salary and you’re not performing where I want, I have to look at this as, okay, who else can do this job for this amount of money to my level of expectation?

And that’s what happens when higher salaries get involved. If employees do push themselves to that level, they have to know, Hey, you’ve been given a great responsibility, a good salary, so you’re, you are expected to maintain a certain level of value in the company in a certain level of production.

They just have to know those things. One thing I also like to stress to employees is that there’s no big salary bumps because you’ve been around. That’s not really going to happen. We could go to cost of living and make some minor adjustments to salary, but that’s not the kind of like raise I’m talking about.

I’m talking about like a more significant increase in raise, like a significant percentage of whatever their base salary is, so on and so forth. There’s no, Oh, you’ve been around, here’s your three year. We don’t do that in any of our companies. Everything is value based, right? So if you want small bumps for the rest of your life, which some people are okay with, cool, just stick around.

Yeah, maybe we’ll give you some cost of living adjustments, so on and so forth. But if you’re looking to really get paid more in a small business, then that I let them know that they have to provide value. The value just has to match. That’s what we’re looking for. We’re looking for the value. And this is something that you have to express to your employees.

And so if you do all of these things, you’ll start to build a culture around what gets people paid more. You’ll have communication on both sides. You have communication of, okay, because sometimes I’ve been in plenty of these reviews where employees are like, I do feel adequately paid, great. And then we still will talk about the rating situation.

rate yourself, i’ll rate you

But if you feel adequately paid, I rate you here, you rate yourself there, great. That’s a good conversation. I’ve also been in situations where it didn’t match. I feel like you’re adequately paid. You feel like you’re not. I’ve been in situations where someone said that they’re adequately paid. And I say, I don’t think that you’re adequately paid.

I think that we need to pay you more. You can run to a lot of these different situations as you work more with somebody. But if you have those communication lines open, you now aren’t getting the disgruntled, neglected employee. You’re at least, they’re at least able to talk to you about it because it’s a very hard thing to talk to a boss about.

So you open that at least twice a year to where they can have conversations with you about their pay. And then you’re also talking about rating. They’re rating themselves and you’re rating them. And if you’re not gonna rate them a 10 out of 10, why not? And to be honest, if you’re rating employees like fives and sixes out of 10, that’s probably already, okay, we’re flirting with you not being around anymore.

So you give them something to work on. And so then the conversation can be, hey, if you can do X, Y, and Z, and I think you’re 10 out of 10 now, maybe we do talk about that raise. Maybe we do talk about that in the next one, but it’s not happening right now. And if people need to leave at that point in time, but if you’re honestly not seeing the value, you don’t just give people a raise because they asked for one.

You have to be a leader. You have to be very objective in running your business. And these things are hard. This is where leadership gets difficult, especially if you have a bigger team and one person asks for a raise. It’s not that everyone knows that everyone’s getting paid, but people talk and everything.

And so if 13 people want a raise, well, you’re in a different situation now. So you have to make sure that the value is there, because I’ll pay anybody any amount of salary. I tell people this all the time, as much salary as I can possibly afford to give you, if you’re bringing the value. If you bring, and I’m talking about actual, like if you’re bringing clients and customers into this company and like you can fulfill, you can do these kinds of things, and that’s not every role in the company, but those are the highest paid positions, the people who are bringing in the new customers.

value based, not tenure based

If you can do that and I don’t have to help you, that’s insanely valuable. That’s worth a ton of money, right? Really high salary. But if you’re doing basic level stuff, that there definitely is a value of that, but that value can get capped. So you have to find more ways to be a value within the company.

And I’ve seen a lot of people realize that and bring more value to the company. But if we don’t communicate these things, we’re not good leaders. Then it just leaves a very stagnant culture and people don’t know if you’re really the person they want to work for long term. Where’s the vision? What are we doing?

What’s possible here? So make sure that you communicate these things and communicate what value actually means in your company. Because it’s going to be different for every company. So if you’re talking to an employee, you have to talk to them about how they can bring more value to the company because you might have like a really hard charging employee that you just haven’t given the opportunity to really get after it.

So I know these things are difficult and hopefully this review process will help you and you’re able to explain to employees what brings value, what doesn’t, where they sit versus where they think that they are, all those kind of things. You just have, this goes back to leadership 101, you have to communicate, you have to be ahead of these things so you’re not ending up in any bad situation a couple of years down the road.

Your team’s not happy, people feeling neglected, all of those things. And I know it’s really difficult to lead on top of everything else that we’re doing. As entrepreneurs, we have to fulfill, we have to wear a lot of different hats. We have to market, we have to run some of the back end. There’s a lot that we’re doing, but you still have to try hard.

You have to lead your team. And so if you’re not doing those things, try harder.