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Making Decisions about Raises

After you have hired a new employee, you are faced with the decision on setting the employee wage. Of course, this is never an easy choice to make on setting the employee wage and it is the same choice you toil with when you decide on raising employee wages. Making decisions on this requires time and evaluation. There are two basic approaches to giving raises:

  • Give everyone the same percentage or dollar amount raise

  • - Give employees different raises based on performance and equality between base raises.

One way to tell if you are paying your employees fair wages is to compare your companies' employee wage amount with your competitors. Do some research on what jobs are out there and what the starting salary is at for their jobs.

When starting the evaluation process, you primary concerns will probably be related to hoe much the employee wage is at now. You want to pay your employees enough to keep good ones, but at the same time you don't want to pay too much that your business's cash flow is jeopardized. When debating a few concerns, make sure to look at the overtime laws and minimum wage laws to be in compliance.

Most employers use a practice called performance appraisal. This is where an employer sits down with an employee every six months and discusses their performance. Studies have shown this is a great practice since it gives employers a chance to coach and motivate their employees. You can also discuss raises during this interview. You can also discuss goals with the employee for a period of time until their next performance evaluation. How well the employee measures up to these goals can help you determine how much of a raise they deserve.

If you decide to pay for performance, the hard part is how to decipher between how well someone has performed and how much of a raise you will give to that employee. Here are a few tips to help make that decision.


  • Know what your salary budget will be as a percentage of your total budget, considering your sales forecast for the coming year.

  • - Decide what form the raises will take.

  • - If you use actual dollars, you can make sure that the person who performs the best gets the most money. The problem becomes figuring out how to divide the money.

  • Do performance appraisals on all employees.

  • - Rank employees based on their performance and the criteria that you set for them.

  • - Divide the money up according to that ranking.

Raising employee wages is hard on any employer. It requires a lot of time and thought. Having a management team is also nice since you can discuss each employee separately and discuss the year's budget. If you cannot afford to give dollar amount raises, it is sometimes better to give a small portion raise to the entire company. Explain to everyone that your budget is a little smaller than it has been in previous years, yet you still want them all to know you appreciate them and their hard work.

Motivating your employees with cash is a typical program followed by many employers. While it is an easy strategy, be careful as it can reduce their commitment to certain parts of their job since they are focusing on one particular goal to get the raise.

This is why so many companies place such importance on overall performance. Sitting down with your HR department is helpful since they typically focus on this with individual employees. The main goal is to keep your employees happy, reduce company spending, and improve overall performance!

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