Is it time for a raise? Considering the current labor shortage, business owners naturally think about boosting pay in order to retain their best employees. But not so fast: before you start handing out raises, step back. It’s best to ensure you are assessing worker performance properly and distributing increases fairly.
The first step is to understand the different kinds of raises, like merit raises and cost of living raises. Then determine what approach will be best for your particular business.
Many businesses offer raises during performance reviews or at the end of the year. It has become increasingly common to award on-the-spot raises that immediately provide employee feedback, encourage hard work, and keep the whole team motivated.
In the corporate world, raises generally fall between 3% and 5% of an employee’s salary. That’s a significantly smaller cost to the business than replacing an employee, which is estimated to be 20% of their annual salary. Even so, a 3% raise might break the budget for a small business.
While there are many reasons employees may deserve a salary increase, here are five criteria to consider.
- Cost of Living: with inflation at a 40-year high in 2022, the question is not if, but when, your company’s wages should be adjusted to reflect the increase. The official COLA adjustment for 2022 was 5.9%. Based on March 2022 data, that number is forecast to be 8.9% for 2023. That is an increase of 14.8% in your employees’ cost of living. Will you be raising wages to keep pace with that?
- Retention: high-performing employees should be rewarded for their work. Otherwise–and particularly in today’s tight labor market–they may feel undervalued and seek new opportunities elsewhere. Raises incentivize talented employees to stay and show them, in a tangible way, that they are valued. That mark of appreciation increases the likelihood of their loyalty to the company.
- Merit: merit-based raises are awarded to employees who learn a new skill or earn a certification. Merit-based raises are most appropriate for employees who best meet your company’s goals, add the most value, and excel at their jobs. Merit raises effectively motivate all employees, showing that your company values hard work and rewards it.
- Length of Service: this used to be standard in most organizations. In today’s fluid employment market, rewarding the length of an employee’s tenure with a raise is less common. Still, it’s a good way to acknowledge your employees’ dedication and loyalty.
- Performance: performance-based raises show an employee that company leadership is aware of their consistent efforts and encourages them to keep up the good work. On-the-spot raises are usually performance-based, as well as effective motivators.
Whether an employee has shown their commitment to a company by staying on for many years, made significant efforts to prove they can exceed expectations, or developed skills that makes them more valuable, there are times throughout an employee’s career when they deserve a raise.
It’s a great day in Emporia!
“Let’s Talk Business” is a weekly column of the Emporia Area Chamber of Commerce and Visit Emporia. The mission of the Chamber is to be proactive in creating an environment for business and community success, guided by the vision that positive attitudes promote positive actions. Contact us at 620-342-1600 or email@example.com and visit our website at www.emporiakschamber.org.