There's nothing worse than being put on the spot by an employee looking for a pay raise—and nothing that'll make you feel better than rewarding an outstanding worker with more money. But whether you're dealing with a stellar or sub-par employee, it's important to remember that no system for the timing of raises will please everybody. The model that fits your business best will depend on the owner's philosophy, the supervisors' sophistication, the financial health of the business and the labor market in which you operate. Here are some common strategies to help you motivate and retain your staff through pay raises.
Raises based on performance
The manager conducts a performance review at established intervals, typically at the end of the trial period for new employees and then annually on the anniversary of hire. Based on the results of this review, the manager chooses (or recommends to upper management) the amount of the raise within an established range (for instance, 25 cents to 50 cents per hour or 3 percent to 10 percent of the base wage).
In theory, you give higher raises to those employees who are performing well, and lower raises—or none at all—to those who don't meet your expectations. All too often, however, managers give the maximum raise to everyone. While this may be due to cowardice or inertia, some managers feel they need to give their people the top allowable increase just to keep them.
There is doubt about whether merit raises significantly affect performance, and social scientists observe that to motivate behavior, a reward must be perceived as a direct consequence of behavior. An annual raise may not provide the necessary "line of sight" to motivate a nonmanagement employee.
Using your discretion
Giving raises at any time based on your own judgement can be particularly powerful with new staffers, who can be rewarded as soon as they prove themselves to be valued employees. Since it will most likely come close to the time of the performance that earned it, such a raise provides the "line of sight."
When evaluations form the basis for deciding the amount of a raise, they may become all about "how much?" Separating pay raises and evaluations allows the manager and employee to focus strictly on performance development in the review meeting.
Another advantage is that this model doesn't lock a company into paying raises it can't afford. The downside is if raises can come at any time, an employee might be more likely to ask for one unexpectedly, putting you on the spot. As one store owner put it, "Every time you turn around you get hit up for money."
Some managers prefer giving the same-sized raise to all staff for, say, every 1,000 hours worked (about six months for a full-time employee). This prevents the manager from having to make judgment calls or defend her decision to disgruntled staff or upper management.
Although it's debatable whether a poor performer will actually improve in the hope of getting a bigger pay increase down the road, the knowledge that raises will be the same for everyone can create a sense of disinterest among the lazy staffers and grievance among the harder workers forced to pick up the slack. As a result, this model puts a premium on management taking timely action to counsel, warn and, if necessary, terminate poor performers.
Separate pay, performance reviews
At the performance review, the manager gives feedback and sets several goals for the employee to work toward. Three to six months later comes the pay review. At this meeting, the manager informs the employee of the amount of his raise, based on progress observed toward the established goals. These goals can be framed in terms of observable behavior (greeting all customers with eye contact and a smile) and measurable results (increasing department sales by 5 percent).
With its clear "line of sight," the separate pay review model has the potential to motivate employees to immediately start working toward their goals. On the other hand, managers hard-pressed to hold one timely review per year won't welcome doubling the load.
Whatever method you choose, try not to lose sight of the fact that a pay raise is an occasion to let your employees know how much you value them. Make the most of this opportunity with your personal thanks, as well as a better paycheck.
Carolee Colter is the principal of Community Consulting Group ([email protected]).
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Natural Foods Merchandiser volume XXVIII/number 6/p.30-31