You might have heard of the saying, “pay peanuts and you get monkeys.” Well, believe me, it’s true, so it is important that the company give raises and pay a market-related salary. One that will attract the right people, and is also fair and sustainable.
Most employees look around and compare their packages with what they can get elsewhere, so it’s important to do market research to ascertain what other companies are paying. In certain circumstances, with exceptional individuals worth a lot to the company, you may have to even consider paying more than the market value. However, this can later cause problems resulting in these individuals receiving lower increases than the rest of the staff.
Companies don’t have an unlimited amount of money to pay inflated raises, and excessive salaries can quickly become unsustainable, eventually making the company uncompetitive or unprofitable.
Here is some advice.
Raises should be received at least once a year and increases should depend on:
- The individual’s performance
- The average increases in the rest of the industry
- If the person’s role has changed
- What the company can afford to pay (although care should be taken with this statement because as I’ve said a company depends on good people and their loss may make the company even less profitable)
- What the company can pay without affecting its competitiveness
- The person’s pay relative to others in the company doing the same work
- What the person contributes and their worth to the company
- Whether the individual has had a long enough service period to warrant an increase (letters of employment should specify the time within which a review will be undertaken)
Some people prefer to avoid giving one large increase, rather splitting it into a couple of incremental increases. Pay increases cannot be undone since it is almost impossible to give a person a decrease in salary.
It is also difficult to undo the damage when a person received an increase that was too small since:
- People can become demotivated which could affect their performance
- They start looking for alternative employment opportunities, and once they have decided they are leaving it can be difficult to change their mind.
Generally, wherever possible, senior management should personally explain to each employee how their salary has been reviewed, providing the reasons for a low increase or congratulating them on their effort which resulted in them receiving a larger increase. It’s often difficult for someone to assess their salary increase by just looking at their payslip or bank account. Taxes and deductions usually have a dramatic impact and negatively distort the size of the increase.
Sometimes salary packages need to be structured in a way that will incentivize and reward employees, as well as providing tax benefits. Most companies allow employees some flexibility as to how they want their packages structured. A structure that suits a younger person may not be suitable for an older person who could want to contribute to their retirement funding.