Is This Your Problem?

My employee has asked for a pay rise...

An employee asking for a pay increase is an everyday fact of business life. There might be numerous reasons why they believe they deserve more, including showing loyalty to your business, having extra responsibilities, improved performance or increased knowledge. A request might simply reflect a general increase in the cost of living or a change in personal circumstances, for example, they may be getting married, buying a house or having a baby.

Many people find it hard to discuss money. You can make the situation less uncomfortable by taking some simple steps.

Treat all requests seriously and arrange an informal meeting as soon as possible. As with all HR issues, hold the meeting in the strictest confidence, be fair and professional. Do some simple research in advance, too.

Employees add value in different ways, so consider requests on merit. Maybe an employee has performed particularly well; perhaps they've secured a major sale or they've driven your business forward in another way. You should recognise their achievements and reward them if possible - otherwise you risk their becoming demotivated by feeling undervalued.

It's important to know what the cashflow of your business is. Find out how much money (if any) you can afford to spend on wage increases, now and in the near future. If necessary, try to find out how much other businesses pay (particularly your competitors).

During the meeting, be constructive and positive. Listen to your employee's opinions; they might have valid reasons you had not realised. Make notes, so that later you can come to an informed decision and feedback to your employee.

An employee might take a hard-line approach, by issuing you with an ultimatum ("If I don't get X I'll leave"). Don't be backed into a corner. Simply say that you always take adequate time to consider requests.

If you decide your employee deserves a pay rise and you can afford it, think carefully when deciding how much you are going to award. If you give so much as you're unlikely to be able to give any more down the line, you risk taking away future financial incentives. Be aware, too, that awarding a pay rise to one employee might have a knock-on effect on others. More requests may soon follow, so be prepared.

If you cannot afford a rise, consider alternative ways to reward deserving employees. For example, you could increase their annual leave entitlement. Promise to review the situation again when the business is financially better off. Keep the timescale reasonable (between three and six months); otherwise your employee might feel neglected.

If your employee doesn't deserve a rise, let them know how they can improve their performance. Set targets they can aim at, so they will be more deserving of a rise in the future. Promise to review the situation in three to six months' time, which will give them an incentive to improve their performance.