Got employees asking for a pay rise? Here’s how employers should respond

If you do a search on Google, you’ll find multiple articles discussing how an employee should ask for a pay rise.

But there is little advice on how an employer should respond to such a request.

This article offers some key pointers to you, as an employer, on what you should do when an employee approaches you about a pay rise.

Here’s what we cover:

How should you initially react to a pay rise request?

When an employee asks for a pay increase, you should be conscious that it can be difficult for them to bring up the subject of pay and you should react respectfully and professionally.

Maureen Lynch, managing director of recruitment company Hays, stresses that it’s important to take the request seriously and not to try and avoid it or play it down.

So what should your reaction be to the request of a pay rise?

Start by letting the employee outline the reasons why they believe they’re entitled to a pay rise.

Then tell them you’ll reflect on their request, perhaps indicate that you’ll consult with other relevant colleagues, and indicate when you will respond.

Should you combine a pay increase with a performance review?

Maureen says: “Some organisations have quite a tight pay structure, where incremental adjustments to an employee’s salary can only be made once they’ve hit specific targets.

“Others, usually smaller organisations, have a more flexible system of salary negotiation.”

She adds: “One way to put in some structure is to have a system in place where employees have to fill out a self-evaluation form when requesting a pay rise.

“The benefits of this are that, on the one hand, you’re asking the employee to properly think through and justify their worth, while, on the other, you’re giving yourself time to respond.”

This can be an efficient way to handle pay reviews, but it does not work for all companies.

And if the review process is deemed to be unfair or unclear, it can create an atmosphere of resentment within your business.

Also, sometimes, by tying performance and pay reviews together, the employee is inclined to focus on the pay review and is less focused on feedback on their performance.

So, it’s important to find a structure that works best for your company.

Factors to take into account when considering a pay increase

While related to performance, there are other factors you should take into account when considering a pay increase.

What experience does your employee have?

How does their pay compare with other employees?

And if you give this person a pay increase, will other employees then expect one?

It’s worth checking (if you don’t have the details to hand) how your employee’s pay compares with the market. Recruiters such as Hays and Morgan McKinley publish yearly salary guides and this may give you an indication.

Crucially, you should also think about how valuable this employee is to your organisation.

Is this person a leader? Is this employee a positive team member who is always ready to take on extra responsibility?

Is this person highly skilled?

And probably the most critical question you should ask is whether this person will be difficult to replace.

How to negotiate when an employee asks for a pay rise

Negotiating a pay increase can be stressful for both parties.

Before engaging, you should be very clear of your position in terms of the upper limit of what you can offer and what you expect in return.

Focus on the facts and don’t let emotion get in the way.

Also, if you agree to a pay increase, there should be something in it for the company – be that increased responsibility or other improvements.

Find the right balance

As an employer, you must balance the employee’s expectations with the company’s financial constraints. Working to a payroll budget here will help.

On top of this, the labour market continues to be very tight and you must also consider the risk of not giving your employee a pay increase.

Is this employee likely to walk as a result?

If this is a concern, you need to consider the full implications.

Maureen says: “You might find that while your budget will take a bit of a hit from increasing the employee’s salary, it may take a lot bigger hit from having to source, interview and train a brand new member of the team.

“Even then, there’s no guarantee that this new employee will match the expertise and proficiency of their predecessor.

“So, it’s an assessment of resources, not just in terms of capital, but also your time.”

Can alternatives to a pay increase be offered?

Perhaps your company can’t afford to give a pay increase right now.

Maureen says: “It might be that your employee is fully deserving of a raise, however they’ve just made the request at the wrong time, and you can work towards a feasible timeline of them achieving this.”

If so, you could offer your employee other benefits.

Depending on the employee’s priorities, perks such as share options, flexible hours, remote working or more generous annual leave could placate the employee if their pay increase is declined.

Maureen also suggests other less obvious perks, but perks that can all the same be potentially attractive, such as giving the employee added influence, more autonomy, greater access to top clients or more opportunities for business travel.

How to communicate your pay rise decision

Depending on the size or type of your company, it may be someone from HR or you as the boss that informs the employee of the company’s decision.

Whether it’s good or bad news, it is important to outline clearly how you came to the decision.

Final thoughts

Your employees are the backbone of your company and you want them to be motivated and happy.

But you may not be in a position to offer a pay rise.

However, if you are totally transparent with your reasoning throughout the process then, even if the pay increase is refused, the employee should feel that they have been treated fairly.

And also outlining a clear path to achieving a pay rise in the future should give the employee something to aim for and help to maintain a positive relationship.