By Mike Toten Freelance Writer


Most organisations have a formal pay review process, such as annual reviews, but sometimes an employee unexpectedly asks for a pay raise. Simply replying, “No, wait for your annual review,” is inadequate because the employee is likely aware of how the formal system operates. Even if the request seems unjustified, it's essential to handle it seriously, ensuring the employee understands that you took it seriously.

 


What to do when you get a request

  • The first step is to ascertain why an employee has suddenly made a request. It could be because:

  • They have recently gained an extra qualification

  • They have recently completed an important work assignment

  • They have considered resigning, and may have already been offered another job, but would prefer to stay if a better deal can be achieved

  • They may have some outside-work commitments, causing financial difficulty, and are looking for a solution.

  • They may be an opportunist who perceives the organisation to be vulnerable at present, e.g. because other key employees have recently resigned, or a significant work project is about to commence.


Knowing the reason(s) for requesting a pay rise will help determine the best response. However, some guidelines should apply to handling all requests.

  • Ask the employee to clearly outline the reasons for requesting a pay rise. Listen carefully to what they say.

  • Review the employee’s file, recent employment history, and job performance. How does their current pay rate compare to other staff in similar roles and to market standards for comparable positions? Have there been any recent changes? Factors related to job performance that may support an increase include:

  • consistently meeting deadlines and being highly dependable

  • taking on extra responsibilities or working hours, either voluntarily or because the job demands have expanded

    • going above and beyond normal job requirements

    • adding extra value through innovation, lateral thinking, improving work processes, new ideas, etc

    • always being keen to learn and improve

    • Having a positive attitude that encourages and motivates co-workers.

  • Market rates and other comparative data help provide an objective basis for any decision you make. Many employees are unaware of how their pay compares; for example, they may not realise they are already receiving an above-average rate.

  • Schedule a private meeting with the employee with no potential distractions.

  • If you have decided to say no to a pay rise, consider other possible options you can offer the employee, such as more flexible working arrangements, cost savings via partial working at home, extra fringe benefits, loans to employees in financial difficulty, etc. But these need to be tailored to the preferences of each employee to be effective, so don’t make a firm decision about any of them until you have discussed them with the employee.

  • Try to evaluate the potential consequences of saying no. For example, can you afford to lose a good employee who wants to stay but has received a better offer elsewhere? Will the issue resurface in a few months? What will the impact be if you decide to give in?

  • At the meeting, explain clearly why you cannot grant a pay rise. Mention all relevant factors, e.g. budget, level of job performance, equity with other employees, etc. Explain in detail how pay rates are calculated within the organisation and when the next review of all pay rates is scheduled. This will make it easier to understand what an employee needs to achieve to earn a pay rise – and hopefully reinforce the message that improved performance will be rewarded.

  • Allow the employee to ask questions. The process must be perceived as fair and transparent.

  • If there are alternatives to a pay rise you are willing to offer (as per the list above), discuss them in detail with the employee.

  • Keep a record of the discussion with the employee, in case it is challenged (e.g. a claim of discrimination) or if they make another request later.


It is recommended to have a process in place for handling unexpected requests. This helps to ensure they are handled professionally, and no relevant factors are overlooked.
 

If you say yes to a pay rise

If you agree to a pay rise, explain in detail your basis for granting it. Specifically, mention any extra contribution the employee has made. Notify them in writing of the decision, setting out the new pay rate and the increase in both dollar and percentage terms.
 

In summary

Telling an employee they cannot have a pay rise is a problematic and potentially scary experience for managers. You need to be well-prepared through thorough prior research, able to objectively justify the decision, and handle the process tactfully and respectfully.