Pay Raises: Know What Competitors Are Paying and What Your Employees Are Worth


As the woman listened to her boss encouraging her to stay … urging her to reconsider … offering a 25 percent pay raise, she found herself surprisingly not flattered … but angry … and annoyed. Now that she was leaving, he wanted to boost her salary? And only now, now that she had one foot out the door, was he making the offer ….

Budgets are tight. People are mobile. If you really value someone who’s working for you, don’t wait until they resign to offer them a raise or bonus. Citing Bureau of Labor Statistics trends, an article in Forbes suggests that the best way for employees to build earnings is to actually change jobs.  The BLS reports across-the-board 2015 wage and salary increases at a mere 2.1 percent.

As a manager, you’d like to believe that recognition, praise and thank-yous go a long way to making your employees feel appreciated—and they probably do. But don’t underestimate the power of money when it comes to keeping good employees.

Here are a few ideas when it comes to giving raises:

  1. Know the market value of your employees. What do other industry professionals in your area with similar job descriptions make? As employees gain experience, their value increases—and not just to you. Other organizations and competitors could save a lot of time hiring someone who has already learned the ropes and made a few mistakes on your dime. Seattle-based PayScale, Inc. suggests that you also keep an eye on economic trends so you have a solid compensation strategy that includes market-based pay for individual employees. Your “workforce is the competitive differentiator during the best and worst of economic times.” (They point out an interesting note from their 2006–2015 data: In general, while wages have increased during that time, the consumer price index has increased faster. “Today’s income for a typical full-time, private industry worker buys them 7 percent less than it did in 2006.”)
  2. What is the salary range at your company for someone with this job description? Having an established pay range for the position is part of an overall compensation strategy and helps when considering giving someone a raise. As your new hire gains experience and speed, so should his or her pay within that range. PayScale suggests that the strong positive correlation between an employee’s proficiency and pay increases drops off as they become more experienced. So, while a new hire right out of school might start with a lower initial compensation, raise percentages are usually bigger in their first year of employment and taper as they hit their stride.
  3. When an employee reaches the upper end of the salary range, is promotion an option? While promoting an employee can be a reward in itself, a new, higher position within the company might come with its own higher pay scale. If an employee has hit the upper end of the pay scale for his or her position, a promotion can keep your employee happy and offer added challenges and growth opportunities.
  4. Merit-based raises? Some organizations offer a standard raise to everyone. Others give performance-based raises or some combination of both options. While there is a move away from awarding raises based on actual performance reviews, many companies still use this system because it provides written justification for variations. Ongoing feedback (and regular record keeping) will make this system work better—making the outcome of the review (and the corresponding pay change) no surprise to your employee. There are pros and cons to both methods. You must weigh the importance of differentiating top performers … against your need to keep employees from being pitted against each other.
  5. Give raises other than annually. Most managers work within an established budget. Having the ability to give raises as they are earned rather than as yearly markers gives you flexibility. It also enables you to use raises as incentives as long as you stay within your total salary budget.

A competitive compensation strategy is necessary to attract, retain and motivate good employees. Keep your finger on the pulse of salaries in your area and know the value of your workers.

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