What to do when a report asks for more money, but your employer lacks a good compensation policy
Posted on Harvard Business Review: June 20, 2011 9:00 AM
"Can I have a raise?"
Five little words cause a lot of stress and frustration. In many smaller organizations‐and even some larger ones—there's no formal compensation policy. There may not even be an HR professional available to consult on merit increases and other pay issues. In these companies, you are likely to encounter direct requests from your staff members for a raise. Absent a policy, people assume that if they want a raise the only way they can get one is to ask for it.
Of course, the best solution to this problem is to set some kind of compensation policy so these decisions don't have to be handled in a one-off, spur-of-the-moment fashion. But as a manager, you may not be in a position to determine what your company's policy will be, particularly if your company is a small owner-operated firm and you aren't the owner. To have to say, "You'll have to talk to Mr. Jones about that," lets everyone know that you have no power or authority in the really important areas.
Raise-requesters usually offer up a combination of reasons why they deserve a pay increase: They've done an outstanding job and therefore deserve an increase. (Regardless of the truth of the assertion, this reason is almost always offered.) The scope of the job has significantly widened. The person is underpaid compared with peers in the office or what the going rate for the job is at other organizations. The cost of living has gone way up since the last salary adjustment. And there's always the universal "I just need more money" motive.
If you are the decision-maker, the best approach is to thank the person for bringing the matter to your attention along with a promise to get back with an answer by a specific date. From there, talk to other people in leadership positions in your company about the whole issue of compensation. Is this raise request a unique event, or is it the tip of an iceberg of compensation grumbles?
Then, fairly assess the situation. Keep in mind the difference between the value of the role that employees perform and their value as individuals. They're not the same. Every job is worth a certain amount. That amount is determined by the market, not by the quality of the individual's performance or their need for a greater income. It may be that the limit of the value that can be placed on a particular role has simply been reached. The refusal to grant a salary increase here is not a reflection on the person's value as an individual but the worth of the job to the company, no matter how well it's performed.
But let's say a review of the individual's salary-change request tells you that a pay increase is appropriate — the person is, in fact, underpaid compared with others in the company who are doing similar work, or it would be difficult to replace the individual if she left at anywhere near the salary the raise-requester is currently getting. Don't immediately grant the increase. If a salary increase is granted directly following a request, word may spread that all individuals in the organization are underpaid. The unfortunate precedent will be set that the way to get a salary increase is simply to ask for it. You will then be held hostage to all the other raise requests that will immediately follow.
Instead, initiate a second conversation. Explain how the amount of money paid an individual is a function of two things: the value of the job itself and the quality of performance of the person doing the job. Ask the individual to examine both how she might enhance her performance and how her job can be made more valuable to the organization. What additional duties might she assume? How much extra responsibility is she willing to take on? How much extra effort is she willing to put forth?
When these issues have been successfully settled, the pay increase can be granted with both you and your subordinate can leave the table satisfied. With a few extra steps and strategic thinking, answering difficult compensation questions can be a breeze—and not a headache