How to Give a Pay Raise

Your employees are sure to smile with a well-deserved raise.
Your employees are sure to smile with a well-deserved raise. (Image: Jupiterimages/ Images)

When you are a manager, review time can be a challenging task. Part of the challenge is not only giving a fair and honest performance review, but a well-deserved pay raise if one is warranted. It can be a tricky budget balancing act to be able to afford to increase the pay for one or more of your employees. However, failing to reward good work with a pay raise might mean your valued employee will seek work elsewhere. Know the keys to how to give a pay raise to strike the right balance.

Things You'll Need

  • Budget
  • Performance report
  • Senior management guidance/approval (if necessary)

Find out how much money you have allocated to work with in your budget. This is especially challenging if you have more than one staff member and you can only work with a certain budget. Keep an open mind when budgeting. Allocating a budget is also based on the overall company's earning the previous year. The increased productivity is met when the employees work harder, so reward accordingly.

Allocate merit increases that are commensurate to performance. Allocate a higher pay raise to your stronger performers. Normally a 3 to 5 percent pay raise is in the acceptable range. For your weaker performers who show improvement from the previous year, but who still need to improve to be strong performers, you can allocate between 1 percent to 2 percent. For your worst performers, you do not have to give them a pay raise. This will give the message straight to their bottom line so they can strive for improvements next year.

Keep your strong performers happy and make sure that they get the raise that they deserve so that they will not leave you for greener pastures.

Evaluate your budget after giving the pay raises. If you have any left over on your budget, see if you can use the remaining dollars toward performance bonuses for your top performers.

Tips & Warnings

  • Do not talk about your employees pay raise allocation with other people.
  • Do not divulge to your employees about the planned raise you are giving if you haven't received the final approval yet, even if you already got a verbal approval, you need a final written approval to keep your bases covered for there can be last minute changes. Your credibility will be at stake if you are not careful.

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