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7 Ways to Handle an Employee’s Request for a Pay Raise

Jason Richmond
Chief Culture Officer and Founder at Ideal Outcomes

Do you feel uncomfortable when an employee asks for a pay increase? Most leaders do.  Pause for a moment and ask yourself:  how to you think the employee felt asking? If you think it’s likely they were nervous or uncomfortable, you are right. Most people are stressed and feeling emotional when they make such requests. 

Begin with that in mind and let that understanding temper your response. At the same time, asking for an increase is very common, so it is wise to be prepared for when it happens.  Most important is to take the request seriously and respectfully.

You do not have to answer right away, as it’s most important to understand why the employee is asking for a change in compensation. Is it because they feel their pay is unfair in comparison to their peers, are they considering another offer, or have they recently had great success with a key project? Here are some methods to ensure that your conversation is smooth and provides a win-win for both sides: 

Pay raise conversations are natural for every company. Discover how you can best navigate with these seven tips.

Ask for more information: Ask open-ended questions to gain insight and show the employee that you are listening. You might start with, “Why do you feel this way?” Listen closely. Don’t argue or interrupt. Try to truly understand their logic and their emotions and listen for potential misinformation. 

Clarify information that is clearly inaccurate: For example, is the employee basing their perception of under-compensation on a publicly published salary survey? Offer to set up a meeting with Human Resources so that the employee can understand what salary data they use to set pay scales. On the other hand, do not dispute facts you are uncertain about. If you really don’t know, tell the employee that you do not currently have that information on-hand and will need to research. 

Ask for time: Do not go down the budget “rabbit-hole.” If you say you will have to review the budget, employees will assume you are agreeing they deserve a raise and will expect action. Instead, commit to a reasonable timeframe to get back to them.

Do your homework:  Consider the employee’s pay against numerous factors, including discriminatory patterns based on gender or other demographics, their performance compared with their peers, an analysis of their pay to the market, the employee’s past pay increase history, alternatives to base pay increases such as a one-time bonus, or timing of the salary raise request. It’s also helpful to know when  the next companywide formal pay review. 

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Plan your response: According to the Harvard Business Review, companies do a very poor job of communicating why raises are denied. They either provide no information or provide vague information that impacts trust and credibility. Organizations also do a poor job of telling employees why their request is being honored. Plan out your response, including the reasons for your decision, and run it by someone you trust. 

Point out any positives: Even if you cannot give a raise to a key employee, make sure they know you value them. Tell them you think they have a bright future and that the company is not in a position to give an increase at the moment. Concurrently, examine other ways to increase job satisfaction and provide growth opportunities with the chance to shine. 

Be honest when performance Is the issue: Sometimes, a pay raise is denied because of a performance management issue. It’s important to let employees know that to be considered for a pay increase, there are things they need to work on. (Hopefully, this is not the first time you have shared these concerns!) Point out specifically what they need to address and how you can support them. Set some clear milestones and dates for review, where the topic of a pay raise may be had under better circumstances. 

Compensation is an emotional topic, not simply a budgetary consideration. Handling such discussions well is the mark of a strong manager. By preparing well, leveraging your alliance with HR, and ensuring a culture of transparency between you and your reports, you can continue to maintain an environment of high performance where success is rewarded. 

Learn more about Oracle's talent management capabilities and contact us if you have any questions. 

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