6 Best methods for deciding pay raises for employees

There’s no doubt that corporate culture has shifted.

Gone are the days when a new college graduate would seek to cement their place in a massive corporation and stay with that corporation till the end of their career.

Pay raises are one of the most crucial ways that a business can keep its good talent in the long term.

Besides, you do not want to break the bank to the point where the employee is unprofitable, but you also want to reward them for their work and show them that they are valued by the company.

So in this article, Experlu break down several methods to figuring out pay raises,

1. Compare salaries with market rates

When considering employee pay increases, start by comparing the current salaries to the average market rates—which means you need to compare the wages you offer a particular role, to what that same role is paid at other companies.

Knowing the standard salary for different roles will ensure your business can remain competitive, as attracting and retaining talent has become increasingly difficult in the current market.

In doing this kind of research, you might discover that a top-rated employee is being paid less than the average for their role.

And this discovery can help in the decision to offer a pay raise, as keeping your employees’ pay competitive can also help with retention.

Maintaining up-to-date salary data can ensure when the time comes to consider pay increases, you have the information you need to know related to where your employee’s compensation stands within the overall market.

2. Skills and responsibility

When we talk about skills & responsibility regarding potential pay raises it is vital to note that both will vary depending on how long the employee has been with the company, their role, how many years they’ve been in that role and their hierarchy within your company.

It’s safe to say an employee who’s been with your business for over ten years will likely have more skills and responsibility than a relatively new hire.

But this isn’t to say that an employee filing an entry-level position shouldn’t be given the same kind of consideration when it comes to deciding on pay raises.

In fact, taking an in-depth look at employee skills and responsibility can be quite the eye-opener.

There’s a strong possibility you may discover lower-level employees who are taking on more responsibility, working on improving their skills and focusing on their overall production levels.

Comparatively, you may learn that more established; higher-ranking employees aren’t putting in that same kind of effort.

Employee’s who actively work on professional development, volunteer their time to help where ever possible and take the initiative are employee’s you want to keep, and a pay raise can help with this.

3. Consider seniority and work quality

Pay raises are important for everyone in the team.

Use a system which looks at the seniority of the employee and the quality of the work.

By this method, it is easy to calculate, and it is fair to the employees.

Because dedication and hard work should be rewarded, and this method allows for rewarding the team for both.

4. Look at the consistency

Generally, employees change over time. They tend to be excited at the beginning, but in time they become bored and lack consistency.

A pay raise should be based on the performance and how consistent employees are over time.

And also looking at their attendance, performance, sales, attitude and even growth, you will know whether an employee deserves a raise based on how passionate and hardworking they are over the years.

5. Consider the value they bring

The biggest asset we should look for is the amount of value they provide for your company.

That is more than just being busy or helping the business profit more.

It is about building long-term relationships with clients that help the company thrive and grow.

6. Look at other employees’ opinions

In quarterly or year-end reviews, you should include feedback from employee’s team members and any other teams they work with on a continual basis.

This information is invaluable and should be used when considering employee pay raises.

How an employee’s team and peers view them, and their work ethic, skills, and abilities provide insight that management may not have first-hand.

Obviously, peer reviews should be organized—to do this provide team members with a survey that asks specific questions to prevent unhelpful bias.

7. Evaluate performance against yearly / quarterly goals

One more essential factor to consider when working on a pay increase is the performance of an employee.

Year-end and quarterly reviews generally include goal setting and an evaluation as to whether those goals have been met.

Besides, during employee performance reviews, employees must be provided with an opportunity to speak to the work they have done over the course of the year or during the quarter.

Accomplishments, major projects and goals achieved should all be considered when discussing pay raises.

However, when discussing goals, it is essential to ask why an employee may not have met the goal, what circumstances may have prevented them from reaching their goals, and whether the effort was made to achieve it.

While evaluating an employee’s work performance is a necessary criterion to consider when debating pay raises, it shouldn’t be the only consideration.

Final thought

Overall, every company will have different key factors they will consider when debating pay raises.

What important is to understand why you have chosen them and how you will evaluate each one.

Nevertheless, employee pay raises must begin with an organized, detailed plan in place to ensure all the important factors are being looked at.