When to Give a Raise to Your Employees: 4 Scenarios to Consider

When it comes to managing people, why, when, and how to give raises to their employees is one of the biggest challenges that franchise or business owners face. Why? Because given at the right time and in the right way, raises can impact the company culture positively. On the other hand, not having them can affect the working environment negatively. 

You must remember that there are two objectives when it comes to giving people this financial benefit. First, to give recognition for performance. Second, to provide fair and competitive pay according to the market, to be able to retain those employees.

Think about it! Upgrading a person’s salary when they outperform will get them excited and motivated to be in your organization and willing to continue giving you that extra effort when they come to work. Otherwise, even if you have a great culture and you do everything right, if you don’t offer the pay that the employees deserve, then they might end up leaving you.

View these tips to reduce your turnover and improve your employee retention in the long term.

But beware: that doesn’t mean you should raise the payroll so easily. There are four specific situations in which you should consistently give employee raises in your organization. 

1. Increased certified knowledge

If any of your team members have increased their knowledge and you can certify it objectively and measurably, those employees should get a raise. So you need to clearly define what is their primary position, the training they should have, and what their proficiency should be.

Having this clarity will help you determine when additional knowledge, information, training, or proficiency is achieved and deserves a raise for the added value they have brought to the company.

But you must be careful of employees that only learn the skills but are not willing to ever execute them. They don't deserve a raise since the whole point of expanding their abilities is to apply them within the organization. 

2. Timed Performance Evaluations

This evaluation measures the business and the positions, metrics, and results for that particular person so you can quantify if an employee deserves a raise, objectively. 

If the result of the evaluation is not a good one, then the employee will have to deal with not receiving a raise for the moment, accept the consequences, and work towards their development planning. 

That way, if they do what they have to and perform better, the next time the performance evaluation comes around, they’ll have the opportunity to get a raise.

Learn what are the 8 phases of the Employee Life Cycle and tips to manage each of them.

Consider these characteristics when developing these evaluations:

• Do them at a specific time of the year so it is not a surprise.
• Be consistent so that everybody can do it at the same time. 
• Make them objective and measurable.
• Share what will be measured.
• Let the employee have a copy of their results. 
• Include them in your onboarding process.

3. Promotions

Employees should get a raise when they get promoted, not only for the excellent performance so far but for the increased responsibilities they’ll have, either in amount or level of responsibility. 

I strongly recommend having a salary strategy to help you establish the different payment levels consistently. That way, you’ll have the parameters of how much money to give somebody when you promote them while staying objective and fair within your organization. 

It is also useful to avoid inequities, favoritism, and unhappy or upset employees, which is very important to prevent people from leaving you because of a lack of structure or a sense of injustice or discrimination.

Watch: How you decide how to pay people will affect employee retention and morale.

4. Inflation 

Nowadays, you have to keep track of the inflation rate within your business so that you can make the appropriate adjustments on your payroll and you don't lose your people.

Usually, my advice is to have a business performance evaluation done every year. But right now, the analysis has to be done quarterly or at least every six months. This doesn’t mean you're going to make salary adjustments because of inflation every quarter or twice a year, but you need to be aware of what's happening so that you can remain competitive and fair with your payroll and retain employees for the long term. 

Bonus: temporary situations

For situations that have to do with short projects, provisional positions, or anything that is a one-time situation, my suggestion is to give a bonus, not a raise. This doesn’t mean that you need less structure. You need to design a bonus program that will compensate the employee for what they're doing for you and your organization.

Consistency is key when giving raises

As it is with other processes, systems, or structures, if you're going to establish a raise strategy you must make sure you are willing and able to implement and execute consistently for the long term.

To do so, you’ll have to create the processes, the systems, and the owners for them to be able to execute the actions in the years to come. 

Imagine if you give raises to people today but then you forget to give them next month or you do it only for certain people. That could cause unhappiness, frustration, and lack of trust among your team which can hurt your company culture. And that is the last thing that you want for your organization.

These are the four situations when you should give your employees a raise. There’s a lot of strategy behind each one of them because money matters as much as when you do it and how you do it. 

If you want to learn more about these secrets, I would like to invite you to our upcoming Multi-Unit Masterclass, where we will share with you more knowledge and information on how to succeed in your franchise. Go to Multi-unit Franchisee Masterclass.com and register for our upcoming class for free. 

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Reflections:

• Are your raises given by heart or by merit?
• How often do you evaluate your employees' performance? What do you do with those results?
• Do you keep track of the impact of inflation on your industry?
• How consistent is your raise strategy? How can you strengthen it?

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