As a small business owner, you often want to be proactive about rewarding good behavior through monetary compensation; however, sometimes an employee will ask for a raise who you don’t think deserves one. Awkward — but we’ve got you covered on how to handle this tricky situation.
As an employer, you can definitely refuse giving a team member a raise. But if you choose this route, be sure to give truthful and valuable feedback as to why you are denying the raise.
According to PayScale’s Raise Anatomy study, most companies do a bad job of telling their employees why they aren’t getting a raise. The study also found there are significant racial gaps in whose raise requests are approved and whose are not.
According to the study, 33 percent of employers did not provide a reason to their employees about why they did not receive a raise. The study also showed that of those employees who did receive a reason, only 25 percent believed the rationale.
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Fifty-seven percent of employees who believed the rationale were planning to leave their position. Of those who didn’t believe the rationale, 70 percent said they planned to leave their job in the next six months.
The study also found employees who are men of color are 25 percent less likely to receive a raise when they ask for one, compared to their white male peers. Women of color are 19 percent less likely, compared with white male coworkers.
So what to do?
First, think about what qualifications you want in a team member who does deserve a raise. Creating a standardized process to decide who gets a raise will help you treat your team fairly. Objective criteria will help you provide truthful feedback to employees about why they do or do not deserve a raise.
Things such as how many sales someone closes a quarter, how many successful hires have been trained, or reports submitted on time are all objective criteria.
Once you have objectives in place, employees can structure their goals around meeting them and receiving a raise. If an employee does not meet the goal, you have evidence to present that is fair and unbiased as to why they do not deserve a raise.
Other factors that can help you dictate raises are what your competitors are paying for similar roles. You don’t want to lose top talent to a competitor because they were paying more. It will cost you more in the long run to rehire for the position and train someone new.
You should also collect data of your company’s pay structure. This will help you see if you have a gender or racial pay gap — when two people are doing the same or a similar job for different pay.
If you find there is a pay gap based on gender and/or race, you should be prepared to address this gap and what the root causes could be. There are legal consequences of discriminating based on gender, race, and other protected classes. Consult with your attorney to learn more.
Help your team understand that everyone has conscious and unconscious biases, but there are ways to mitigate them to make a more fair and equal workspace.