What To Do When An Employee Asks For A Raise

All of us dread the conversation.

A key employee comes to you and asks for more money.

What do you do? How do you handle it?

You worry about setting a bad precedent yet you cannot allow a good associate walk out the door.

Not to mention the risk of him or her going to a competitor and revealing your trade secrets.

This episode of Four Minute Fixation goes into great detail about how you can handle this issue when it arises.

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Here is a transcript for this episode of Four Minute Fixation.

What To Do When An Employee Asks For A Raise

You wanna what? A raise? Are you crazy?” That’s the wrong way, wanna see the right way?

Hi, it’s Dave Lorenzo and we’re back with another white board Wednesday. Today, we’re addressing a subject that comes up all the time among business leaders.

Let’s say you have a fantastic employee; she’s doing an outstanding job, she’s your top producer and she’s been with you for a while. You think you compensate her fairly. In fact, you think you compensate her more than fairly, and she comes to you and she says “You know what Boss? I’ve been doing this a while now, I know I’m the best worker you have here, I just can’t make ends meet at home and I need more money. Can you give me a raise?” This type of thing keeps people up at night, it keeps you, the business leader up at night. So, what do we do?

Well, today we’re going to talk about what you should do, and what you shouldn’t do in order to make sure you keep that employee happy, and you don’t break the bank or even more importantly, set a horrible precedent that everyone else in your business will follow. Here we go.

So, what should you do when an employee comes to you and asks you for a raise? Let’s take a look.

So, the first thing you should do is you should thank the employee for all their hard work. You should thank them for everything they’ve done and you should acknowledge the fact that they’re a good employee. If they’re the best employee in your firm or in your office, tell them “Listen, thank you so much for the work you’ve done, you’re my top employee and I really appreciate you.” So, thank them and show them appreciation.

The second thing you should do is you should ask them for facts. So you should say to them “Why don’t you tell me a little bit about the reasons behind asking for the raise.” And when you say that, ask them for the business reasons. Tell me what you’ve done for the company in the last six months or tell me what you’ve done for the company since your last performance review or tell me what you’ve done for the company since the last time you have received a raise and show me why you think you merit getting a pay increase now.

You should acknowledge anything they present to you that’s absolutely true. Make sure you acknowledge any of the points they make that are factual and accurate. Very important that you separate business from personal. So, if they need a raise for personal reasons, you have to convince them to separate that from the reasons that they deserve a raise for the company. Now, it’s no surprise that these two things don’t always match up, so you have to encourage them, you have to say things like “Listen, I know that times are tough right now, your husband just lost his job. I appreciate the fact that you need more money. Unfortunately, that’s not a reason for me to give you a raise because I need a company reason. So, let’s talk about what you’ve done for the company over the last year and a half and let’s talk about what you’re going to do for the company and that’s the important things. Separating the business from the personal reasons, why someone’s asking for a raise. Get them to focus on how they can benefit the company. And that takes us to the second set of “do’s” when it comes to handling an employee who wants a raise.

You should or you do offer them a bonus for achieving goals set for the team. Now, you can offer the entire team a bonus, or you can offer just the individual a bonus based on the performance of that person’s work group. What this does, is it takes the focus off of them individually, and it places it on the good of the team; and that’s something you want to encourage because when people come to you and they ask for an individual raise, it sets a bad precedent, but when they ask for a raise you can say “All right, if you work group produces X number of widgets more per hour, that’s a higher level of productivity, so I can give the entire work group a bonus.”

The other thing you should offer is a commission for revenue or profit growth. So let’s say you have an employee, and this actually just happened, I have an employee that is working for one of my clients in a professional services firm, and this employee has done work for clients over, and over, and over again, and she came and she wanted a raise. So, what the business owner said to her employee was here’s what you can do. If you go out and bring in five new clients over the course of the next six months, you will get ten percent commission on each of the clients you bring in based on the revenue. And you’ll get that ten percent commission based on whatever they pay us upfront for the work that we do. That was a great solution because the company is growing as a result of this person bringing in more revenue, and the individual gets, the person gets to realize more money from the company as a result.

You can also offer incentive for personal improvement and/or certification. So, let’s say the person can become board certified in X area or licensed or accredited, you can offer them an increase in their annual salary once they receive that accreditation or licensure. So they’re working towards something while they are going to get their license. Now optional, you can even offer to pay for that licensing or accreditation, and it doesn’t have to be licensing or accreditation, this could also be just taking a specific number of courses that will make them more valuable to the company.

The final point in this area is you can offer benefits or perks instead of offering more money. One of the things we used to do when I worked in New York city, is we used to offer the people who traveled around the city for work, Metro cards that were unlimited on a monthly basis. These were cards they could use as passes to ride the subways all throughout the city and we would offer them unlimited Metro cards which they could use to pay for their transportation to and from the office. This was a great benefit; it saved them about $150 a month because they didn’t have to pay for their own transportation, but they also needed to use it for work. So, we offered them this benefit in lieu of $150 raises. This was a great opportunity for them to take advantage of us as a company, and it was a great way for us to offer them an additional benefit.

All right, what should you not do? What are some of the “don’t s” related to giving people raises?

Well, number one, don’t react defensively. When someone comes to you for a raise, it’s not about you; it’s never about you, and it’s never about your treatment of them, so don’t take it personally and don’t react defensively.

Don’t critique the person. You can definitely talk about job performance, but whatever you do, do not ever, ever critique the individual personally. Don’t say things like their not smart enough, they’re not, they don’t have the intellectual capacity, they don’t have the stamina, they don’t have the guts, the fortitude. Don’t say any of that, Never, ever critique them personally.

Don’t ever compare one employee’s performance to another. An employee may come to you and they may say “This person got a raise and I did not. I work so much better than this person. I work so much harder that this person.” Don’t tolerate that and don’t you ever do that yourself. Don’t ever compare one employee to the other.

Don’t tolerate threats. “If you don’t give me this raise, I’m leaving.” My response to that in my business career has always been to immediately fire that person. When someone threatens me that they are going to leave if they don’t get more money, I fire them. I don’t tolerate threats. Now, you may not what to go to that extreme, but you can never, ever, ever, ever, ever, can I say ever enough, ever, ever, ever give someone a raise when they say that they’re going to leave and go somewhere else if you don’t give them a raise. If they’re overt about it, and they’re direct about it, can’t tolerate that; that person can never get a raise.

Finally, don’t ever give someone a raise without getting something of value back. So, you either get more responsibility from them, you get more value from them somehow, but you always give in order to receive value in return; and that’s ultimately what a promotion is about at work. People take on more responsibility for more income. You always give and receive a value in return.

The final point, and it’s not written down on the board behind me. When you offer people options, like the choice of two or three different things, you’re always going to do better in your relationship with them, then if you just offer a take-it or leave-it. So keep that in mind while you’re discussing this raise or this potential raise with someone. Always give them options of one or of more than one, of two or three things to choose from. You’ll find that you’ll do better, and your relationship is off to a better start.

I know this video is a little bit longer, but that’s a lot of ground to cover cause this is such a huge topic, and I know it’s really weighing on your mind

This has been a Four-Minute Fixation on “What to do When an Employee Asks For a Raise”. Thanks for watching this video all the way to the end. Keep in mind that sometimes there are surprises after the credits and be sure to subscribe to us on YouTube and while you’re there, click “Like”, that’s the thumbs up for this video. And also, make sure you leave us a comment or ask a question down below in YouTube. We really appreciate those questions and comments. Until next time, I’m Dave Lorenzo and I’m fixated on your success.

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