7 Ways To Determine A Good Pay Increase?

In this gloomy economic climate, doing right by your employees and doing the right things for your business can leave you at loggerheads with everyone. Suppliers and vendors still have to be paid, equipment needs to be maintained, and if the employees' checks don't make it out the door by four o'clock Friday, those employees won't be back on Monday! But you still want to reward those who've put forth outstanding effort to grow and safeguard your business by working long hours and not complaining about overtime. What's a reasonable rate to pay that rewards your employees without emptying the company coffers? Here are seven factors to consider.

1) Longevity

While longevity, or time in service to the company, doesn't mean much by itself, it can be a useful touchstone for determining who gets considered for raises first. If you've got someone who's been with the company sixteen years, but won't pull overtime or work on a Saturday, has to be offsite at the same time every day, takes late or lengthy lunches, and calls in whenever they feel like it, this person probably doesn't deserve a raise. An employee who's been with you for six years and does all the things the other guy won't should get higher consideration.

2) Performance

As in our previous example, the six-year employee who's "hungrier" and more willing to do the things you need him to is outperforming his fellow employee. If both of them are performing on par, then you should consider who you have the greater investment in as a starting point. Most people would say this is the sixteen-year employee, but that's not necessarily so. A sixteen-year employee who can only do a set number of tasks is less valuable than the six-year employee who wants every certification and continuing education course he can get.

3) Personal need

While some people say personal factors are the last thing that should be considered when making a business decision, bear in mind that if the six-year employee who's more valuable can make better money doing the same thing elsewhere, there's a distinct risk he will. If he has a pregnant spouse and needs to take care of his family, loyalty goes out the door along with the certifications you paid for. Therefore, keeping him happy and feeling secure in his position is a better investment because that employee represents a greater potential loss to your business.

4) Company finances

Will your company's finances support a pay increase, and if so, how much? Back in 2005, raises topping a dollar or more an hour were commonplace. Now, many companies that give out fifty cent raises are considered to be big spenders, and a dollar an hour seems like wild extravagance! If your company's growth and finances support giving out more money than your competitors, by all means do so. However, most financial experts state that a raise of between two and a half and three and a half percent is considered competitive, as this keeps pace with inflation.

5) Good business sense

If you've had to ask people in the past to take pay cuts, giving out raises should go to the people who accepted cuts first to get them back to making what they deserve. If you're involved in one of the few industries that hasn't felt the pinch of the down economy and your employees are still making roughly what they were before the downturn, this isn't a consideration. But for the vast majority of businesses, showing appreciation to those who kept working for reduced rates when times were toughest will help retain these loyal employees for years to come.

6) Other employee benefits

"Perks" and benefits are seldom considered in an employee's compensation package, but they should be. If your company pays most of an employee's medical, dental, and vision insurance or offers discounted life insurance, the monetary value of these benefits should be considered as well. If your company's insurance premiums are slated to rise by five percent, unless you pass the added cost on to your employees, five percent represents that much less money available to give for merit and longevity raises.

7) Long-term impact

If giving out raises, particularly to those whose performance warrants it, will help strengthen your company, boost morale, and keep your people working to the same high standard you expect, then it's a good investment. If there are rumblings and mutterings about possible danger signs for your field or industry, you might want to defer any raises or employee incentives until you've got a clearer fiscal picture. Many employers make the mistake of gambling that the bottom won't drop out of an industry, learning only too late that it already has. A strong company means more to employees than raises overall, so make sure you're being responsible to your workers and your company.

Clearly deciding when and how much to increase your employees' salaries or wages is not a simple question. You need to look at the big picture and decide if it's more prudent to give your employees a raise, invest in other corporate perks for them, or do nothing for the time being. By choosing carefully and wisely when giving out raises, you can help strengthen your company by retaining a quality, loyalty-driven workforce. Besides, your workers need to know their contributions are noticed and appreciated by the "powers that be."

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