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Whether you operate a large or small company, trepidation of higher payroll expenses can turn your hands cold with perspiration.

That’s especially true when talented employees suddenly ask for a raise when profits are weak.

Talented workers are an asset – your human capital.

Many companies don’t have a compensation policy.

And your company might be like the majority of small businesses or nonprofits in this uncertain economy – having difficulty funding even merit raises.

So what’s the right thing to do with a valued employee who asks for a raise, whether or not you’re the final decision-maker?

The first point to remember: Don’t pass the buck.

You’ll either appear to be evasive or you’ll give away your power.

You don’t want the reputation of being an irrelevant manager.

(Further, there are 20 Tell-Tale Signs – If You’re Under-Performing as a Manager.)

Hopefully, you can establish a compensation policy, but don’t rush into it.

Meantime, in requesting a raise, employees usually mention one of a myriad of reasons:

— Their personal expenses have increased.

— They’re proud of their accomplishments, and they deserve more money.

— They think they’re underpaid compared to their peers either in your company or at other employers.

— Their newly added responsibilities warrant an increase.

Thank the employee for approaching you, and offer the person a time for when you’ll have another chat.

Strategies to implement

You’re probably aware that an employee who asks for a raise has already launched a job search or is at least doing a cursory look for other opportunities. Don’t panic, but be aware that compensation issues are taken very personally by workers.

Thank the employee for approaching you, and offer the person a time for when you’ll have another chat. Then, roll up your sleeves and make this a priority.

Mention the issue to your boss and/or other managers in your company. Get some feedback, and monetarily analyze the circumstances.

Philosophically, know this: Each position in your company has a certain value, as determined by the marketplace. An employee’s personal finances aren’t germane in this situation. Nor is the employee’s performance, if the ceiling-value of the person’s job responsibilities has been maxed out.

If the budget is too constrained, be candid. But offer hope and Power Your Brand with Employee Empowerment.

Either way, if you determine the person is underpaid and/or you don’t want to risk losing the employee, indicate a raise is possible with some provisos.

Remember, if other employees perceive from water cooler gossip that you automatically grant raises whenever asked, you’d be in danger of setting a dangerous example. Any morale issues will be exacerbated. Other employees – valued or not – will soon be in your office lobbying for raises.

Set an appointment for another chat and plan so that it results in the employee taking more ownership. But don’t give a false promise. It the budget won’t allow for an increase and continue to discuss how to make it happen.

Clarify how raises are determined – the worth of a job’s role to the organization’s bottom-line, and the employee’s performance. Ask the employee to evaluate how the position can be increased in value to the firm, and how her/his responsibilities can be expanded to generate more value.

Once these matters reach a successful conclusion, award the pay raise.

Poor performance – if a raise is out of the question

Here’s a three-step process:

1. Empathize – acknowledge the person’s feelings.

2. Ask the employee to restate the concern in her/his own words. Why? The employee feels empathy from you and feels you’re listening; and you fully understand the concerns of the person before proceeding in the discussion.

3. Overcome the employee’s concerns with facts and relevant information. Then, ask for the employee to commit to working for improvement in the value of the job’s role to the organization, and for improved personal performance.

If the employee is obstinate, you’re suddenly been warned about more problems.

Good luck.

From the Coach’s Corner, here are relevant HR resource links:

Why Companies Fall into the Management Lawsuit Trap — News headlines continue to show there are a myriad of ways managers set themselves up for lawsuits. Small and many big companies are ripe for EEOC complaints. The majority of lawsuits targeting management usually stem from a half dozen poor practices. You’ll get into trouble using these six bad practices.

21 Quick Tips to Avoid the Dark Side of Management — It’s true that not all employee complaints about management are valid. Many aren’t. Some originate from mere office politics. Managing employees is difficult. So the purpose here is not to indict the managers who are professional – assiduous, empathetic, good motivators and make sure their workplace stays out of legal trouble. Here are tips for management performance.

Human Resources – Slow Motion Gets You There Faster — If you’re feeling distracted and unable to accomplish your goals, stop wrestling with these issues. It’s time to slow down and learn the art of uni-tasking. That’s the only way to focus and to achieve your goals. Another way to put it, compartmentalizing, which is an effective way to solve business problems.

Human Resources: 12 Errors to Avoid in Evaluations — How should you properly evaluate employees? Make sure you are careful to avoid errors in evaluations. Naturally, you want to praise good performance and discourage bad. What are the best ways? Here’s how to avoid making those classic mistakes.

If I agreed with you we’d both be wrong.


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.