It’s a truism that just about any manager or business owner will be approached at some point by employees seeking raises. However, limited financial resources or poor employee performance, among other considerations, mean that raises can’t be given automatically. There are times when such requests will have to be rejected. Sometimes, for example, an employee will not deserve the raise he or she is asking for, and as a manager you will have to explain why this is so. Other times the employee will deserve a raise but the company’s financial situation won't permit it. Whatever the case, you’ll have to make your employees understand why raises can’t be given.
When the Employee Deserves a Raise
Be honest with the employee about why you are unable to offer a raise at the present time. Assure him or her that the lack of a raise is not because you don't appreciate the work that he or she is performing. If applicable, tell the employee that you are not getting a raise either. If you are taking a pay cut, mention that as well.
Make an appointment for a future work evaluation where the possibility of a raise can be discussed. In particular, do this if you can predict the ending of a cash-flow crisis or other financial difficulty that is currently preventing you from offering raises.
Offer the employee other rewards for a job well done. Non-monetary rewards could include paid time off, better benefits, a more flexible work schedule or whatever other perks are fiscally viable at the time.
When the Employee Does Not Deserve a Raise
Be honest and upfront about why the employee doesn't deserve the raise. Be specific about the aspects of his or her work performance that are standing between them and the raise.
Ensure that the employee understands that he or she is in control of whether or not a raise is given. Stress the fact that when the company's fiscal health is solid, raises are bestowed upon those employees who deserve them.
Tell the employee that when his value to the company or organization exceeds his cost, he will get -- or be in line for -- a raise. Offer suggestions regarding how his or her performance can be improved. Encourage the employee to do well at his or her job and try for a raise again next year.