My Employee Asked for a Raise. Now What?

Ask a Recruiter - Employer Q&A

Ask a Recruiter

Q: I hired someone about a year ago at the top of our salary range, thinking they’d be able to contribute right away. Don’t get me wrong — they’re a great employee, but I have a feeling they’re expecting a raise at the year mark and I’m not comfortable bumping up their current pay based on their current contribution levels and our financial situation. I want to retain them. How do I handle this?  

A: Having open conversations about money can feel incredibly taboo. And, it’s also the most tangible way of showing employees their value to you.  

You have three options here: do nothing, have a conversation about why you’re uncomfortable giving them a raise in the present moment, or give them a raise.  
 

  1. If you do nothing, you’re risking your employee making assumptions about their future at your organization. Most people in organizations without clear salary structures expect an adjustment on an annual basis. Even if you feel you’re already compensating this employee adequately, according to a 2021 Payscale study, 42% of people who were paid above market thought they were being paid below market. And people who are feeling underpaid are 50% more likely to seek new opportunities. Providing context (e.g., your financial situation) or transparency (e.g., how you’re evaluating their contribution in the context of the organization) might help dispel assumptions this employee has.  
     
  2. If you’re not planning to give a raise in the present moment, try to be clear about when and how a raise could happen in the future. Typically, raise decisions are a product of several factors: market, company performance, and individual performance. Be transparent around market and company performance factors, but also let them know what could be in their control (e.g., what extra tasks could they take on? What are the most valuable parts of their role to you?). When can they expect an adjustment based on changes to those factors?  
     
    Also, even if you’re not considering a raise for this employee, a cost-of-living adjustment (COLA) maintains a salary’s buying power in the face of inflation. If you’re not awarding COLAs on an annual basis, especially when inflation is high, your employee is actually experiencing a decrease in the value of their salary. If you don’t think an adjustment is necessary based on performance, you might still want to consider a COLA to maintain the salary the employee is already receiving.  
     
  3. If you’d like to give a raise — whether it’s COLA or performance-based — being transparent about the factors that resulted in your decision will help employees contextualize their pay better and feel more confident in the outcome.  

    You might also consider a conversation letting them know you’ll be reviewing their salary at the end of the year, or at the end of the fiscal year, so they aren’t left wondering.  

PS: If you’d like more support navigating compensation, our HR Consultant can help!

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