Working with business owners I am often asked, “What I think a fair pay raise is and when do I give them.” Twenty five or 50 cents an hour, a dollar an hour, a hundred dollars a month or more… Do I give them once a year, twice a year, at their anniversary or at the start of the New Year? None of the above!
Firstly, you should have pay bands established with a very clear pay raise policy. I see businesses with pay all over the place and no logical pattern. This will cause upheaval within a business and also opens the door for team confrontation within the business.
These are my usual recommendations when working with business owners in establishing the following.
1. Establish position pay bands with a min, mid and max for each position.
2. Only give pay raises based on a percentage basis. DO NOT give raises based on Dollars.
3. Have a set time each year to give pay raises. Usually this will be within the quarter following the businesses fiscal year end for the business or with the yearly anniversary of the employee. The owners are able to determine profitability and affordability. (Note: Since budgeting should be completed, raises should be within the budget and planned for.)
4. Effectively communicate the pay raise policy to all employees and also to all new hires during their hiring process.
5. Drop the employee Performance Evaluation process and put in place a Self-Perform Development process that is not tied to raises.
6. DO base raises on employee engagement and contribution to the success of the business.
There are a few things that come into play to establish the pay raise percentage per employee. The first thing that I look at is what is in the budget for pay raises. For example let say that you have budgeted 10% increase in the payroll