Years ago, I got fired over problems that arose regarding an employee’s raise. So I may care a little more about what you should say, and do, when an employee asks for a salary increase.

But you should care just as much. Because how you handle the raise request situation will immediately impact your employee’s motivation, performance, and ultimately, the success of your entire team.

Let’s make sure the outcome is positive—even if you have to say “no” to the request.

We’ll break the process down into three stages:

What to know before your employee asks for a raise

Let’s start with some basics.

1. What a particular employee may need is certainly important, but it should not be part of the discussion.

Some employees have families. Some have lots of bills. Some have major expenses to pay off.

While it may sound harsh, no matter how pressing an employee’s need, their pay should always be based on their value to your business. Not their needs.

Is it fair to pay one employee more simply because they have a large family when another employee performs at an equal or even higher level?

Of course not.

No matter how valid or pressing your employee’s needs, those issues should not enter into the discussion. So be prepared to shift the focus immediately to what your employee has achieved. (Like respect, higher pay should always be earned.)

Make sure you’re prepared to discuss hard numbers, not just opinions. Before you meet,

  • Check your payroll system to see what their current salary or wage is and how that compares to others in similar roles and of similar performance.
  • Check other tools you use that collect data, like your CRM software or POS system, to see employees’ sales figures and progress against targets, if it applies to their job.

Higher pay should result from greater value provided—so make sure you know just how valuable your employee is.

2. How an employee performs compared to their peers is important, but it shouldn’t be a part of the discussion.

Maybe Jim does outperform Jessica. Maybe Melody does outperform Mark. Even so: Engaging in that discussion opens a can of worms you can never close.

(Besides, great bosses never discuss another employee’s performance.)

The only thing that matters is your employee asking for the raise. What they’ve done (and how they did it), what they’ve achieved, and what value they create.

Be prepared to shift the focus back to your employee and their accomplishments.

3. Your company’s financial position is certainly important, but it should only be a small part of the discussion.

Your employees should already know if cash flow is extremely tight.

So don’t automatically respond with some version of, “You know I can’t afford to pay you more,” and end the conversation.

Most employees ask for a raise because they genuinely feel they provide greater value to your business than their pay reflects. You’ll need to address that—otherwise your employee will walk away feeling both invalidated and demotivated.

If money is tight, feel free to say so. But be prepared to quickly move on to discuss your employee’s performance, and if your answer will be “no,” what they can do to someday earn that pay increase.

How to respond when your employee asks for a raise

An employee comes to your office, closes the door, and says, “I want to talk to you about getting a raise.”

While the thought might make you uncomfortable, put yourself in your employee’s shoes. It’s hard to ask for a raise. (Have you ever done it? Nope. Me neither.)

They’re nervous. They’re uncomfortable. They’re putting their professional relationship with you on the line.

Don’t blow the moment by deflecting or demurring. Embrace the moment for what it is—an opportunity to have a meaningful conversation with a valued employee.

Nod your head and say,

“Great. Let’s talk about it. Tell me why you feel you deserve a raise.”

And then listen.

Don’t argue. Validate your employee’s feelings by giving them the opportunity to talk. And if you do ask questions, make sure they’re clarifying questions. In short, seek to understand. Then respond.

If you’re a great boss, chances are your employee is already paid fairly. But if you decide your employee does deserve a raise, don’t just say, “Yes.”

Explain why. Make sure they don’t just feel you “gave” them a raise. (Or somehow gave in.) Make sure they understand they earned it. In short, if your employee’s accomplishments persuade you that they’re underpaid, rectify the situation.

But if that’s not the case, you’ll have to say no. But don’t stop there. Offer hope—and more importantly, offer a path by explaining exactly what your employee will need to do in order to earn a raise.

Here are some ideas you can give them:

1. Create a side project. 

Excelling at an assigned project is expected. Excelling at a side project makes people stand out. The key is for your employee to take a risk while making sure your company or customers don’t share that risk.

Years ago, I decided to create a web-based employee handbook my then-employer could put on the company Intranet. (Yes, it was a long time ago.) I worked on the project at home and a few managers liked it, but our HR manager hated it, which meant it died an inglorious death.

I was disappointed. But the company wasn’t “out” anything, and soon after I was selected for a high-visibility project.

Why? Because my little side project made others see me as “that guy.”

2. Raise less issues, solve more problems. 

Plenty of people take verbal stands. Fewer put effort behind their opinions and back them up with research and work product. Instead of showing everyone how smart they are by pointing out a problem, the best employees fix the problem.

Encourage your employee to do the same.

3. Be the person who drives important results. 

No matter the business, one or two things truly drive results.

Maybe it’s quality. Maybe it’s service. Maybe it’s being the low-cost provider.

Other aspects are important, but for every business, one or two are absolutely make-or-break. The best employees focus most of their efforts on those areas, because that will help the business succeed.

And because the people who are invaluable to a company’s success are always worth more.

4. Do the next job. 

Most people wait to get a raise before they consider working harder. The smart approach is to work harder now, so employees can prove they’re capable for the next, more advanced, and higher-paying job.

Great employees say,

“I want to earn more… so I will do everything possible to prove that I should make more money.”

Hard work always comes before the reward. Great employees know that attitude sets them apart, if only because few people think that way.

And one last point. If you suggest ways an employee can earn a raise and they’re unwilling, that’s okay too. Ultimately, all you can do is lay out the path.

Your employee will decide whether they wish to walk that path.

What to do after you’ve had the raise request conversation

As a boss, the worst thing you can do after an employee asks for a raise is pretend the conversation never happened. You may be tempted to forget it, especially if things didn’t go particularly well, but your employee definitely won’t forget.

Use that fact to your advantage.

  • Follow up.
  • Ask how a project is going.
  • Ask how a development plan is progressing.
  • Ask about problems solved, or informal leadership roles assumed, or unusually positive outcomes.

In short, follow up because it shows you care, that you take their initiative seriously, and that you want to motivate them for the future. Follow up because it shows you want them to get that raise.

But also because following up provides more opportunities to have meaningful conversations with your employees—and in the process, helps them achieve their goals.

Which, not coincidentally, will also help your business achieve its goals.

Jeff Haden Jeff Haden is a writer, speaker, small business management expert, and Inc.’s most popular columnist. He's the author of The Motivation Myth: How High Achievers Really Set Themselves Up to Win.
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