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6 tips for handling pay rise requests

As a small business manager, you want to keep your workers happy and feeling wanted. But you also may only have a limited budget and don’t want money-fuelled petty jealousies creeping into the office.

So what do you do if one of your employees asks for a pay rise?

You need to tread carefully as you decision can have big implications for a small firm.

BE blog 18.08

Here are our tips on how to handle it …

Setting the parameters

Set a system in place first.

For example, are you one of those bosses who likes to negotiate salaries individually?

Or do you prefer collective bargaining with each role getting the same salary?

The argument for the former revolves around a meritocracy.

For example, you wouldn’t want to pay a journeyman worker the same as your most productive one.

A happy compromise is to set a pay scale for each role. This gives you flexibility within fixed parameters. For example, you’ll offer anywhere between £35,000-£52,000 for middle management, depending on how you value them.

You’ll then have to decide whether workers should get an annual pay rise at a set date every year or whether they will be paid at your discretion.

You should also choose whether a yearly pay hike should be based on inflation, merit or as a fixed percentage of your business’s profit every 12 months.

Be careful not to make the common mistake of caving in to the staff who shout loudest and demand to leave.

Keep in mind that it will, on average, cost your firm 150% of a worker’s salary to replace them, according to Reed consulting firm. This is because of recruiting, retraining and lost productivity costs.

Confidentiality

Confidentiality is recommended to avoid staff disclosing how much (or how little) their rise is, especially in smaller workplaces.

If you’re going down the individual salary negotiation/meritocracy route, then you should prepare for ill-feeling, frustration and petty jealousies if salaries aren’t kept confidential.

Know your market

If you view yourself as a market leader among small businesses, you will be expected to pay top dollar to attract top staff.

Do your homework. Research what comparable companies are paying or look for the market average. Then try to pitch above these.

Know your worker’s worth

What is your employee worth to the company? Keep a distinction between their role’s value and their own. There is a subtle difference.

Alternatives

If your firm’s finances cannot withstand a pay rise, consider other ways of making employees feel wanted. These may include extra perks (healthcare and extra holidays), extra responsibilities and/or training, or a non-financial bonus, such as shopping vouchers or a weekend break.

Get your money’s worth

If you’re going to agree to a wage demand, ensure that you’re getting your money’s worth. This is usually a good time to slip in extra responsibilities for that worker.