Performance-based raises can be a difficult subject for business leaders, especially if there’s not enough room in the budget to give everyone on the team a substantial increase. Determining who receives a pay bump — and more importantly, how much they get — requires you to know how to set your parameters in order to evaluate your employees. To find out, we asked 14 members of Young Entrepreneur Council (YEC) the following question:
“What method works best for determining which employees get pay raises? How do you determine what level of raise to give?”
How to Decide Who Gets a Raise
Here’s what YEC community members had to say:
1. Use a Pay Grid
“To ensure that each employee is treated fairly, be proactive by creating a company-wide pay grid. A pay grid is a range of compensation, for instance between $60,000 (step 1) and $70,000 (step 10). Depending on years of experience, performance and soft-skills, an employee starts at a specific step and each year they are eligible for a one, two or three step increase. This is fair and effective.” ~ David Ciccarelli, Voices.com
2. Reward Quality of Work
“It does not matter how long they have been working for the company: All that matters how well they do at the job and how crucial it is that they stay. When picking who gets the raise, pick quality over quantity. When it comes to what level to give the raise give, reflect on what you think that employee is worth. At the end of the day, it’s about passion and performance in their role.” ~ Samuel Thimothy, OneIMS – Integrated Marketing Solutions
3. Value Growth as a Leader
“Each employee is judged on a standard scale for reviews, but we also look at how that person grew as a leader at Fortress. If they showed exceptional growth as a leader or stepped into a role with more responsibility, we reward that. The levels of raises take multiple factors into consideration including market data, revenue generated and potential opportunity.” ~ Joel Mathew, Fortress Consulting Group
4. Whether They’ve Met and Exceeded Expectations
“Managers should determine whether employees have met all goals, exceeded expectations in any way, and give employees chances to explain or add any additional tasks they have made prior to evaluations. These exercises are a great way to measure individual employees and the team. Those who have exceeded expectations should be rewarded with bigger salary increases.” ~ Blair Thomas, eMerchantBroker
5. Do They Show Consistent Excellence?
“I like to see employees maintain a consistent level of excellence, which makes them irreplaceable and leads to them receiving a more substantial raise. Great employees are hard to find, so when you do it’s important to reward them accordingly so they stay with you. That’s how you can begin to build your team of A players.” ~ Syed Balkhi, WPBeginner
6. Examine Client Data
“My employees get raises every year based on their performance, which we measure using data on their client retention rates. In the service industry, client retention is the most important thing. Fortunately, with scheduling software, this is easily tracked.” ~ Rachel Beider, Massage Greenpoint, Massage Williamsburg, Massage Outpost
7. Weigh Individual Performance and Market Value
“It’s wise to always research what the competitive salaries are when determining how much of a raise to reward your employees with. An employee’s work performance will also be key in determining the amount in terms of how much value they are adding to your company.” ~ Chris Quiocho, Offland Media
8. Look at Their Productivity and Promise
“It is all about how much a specific employee produces. As long as you are able to get data on the productivity of an employee based on KPIs, this will be a straightforward process. The level of raise depends on how attentive the employee is, as well as the growth potential.” ~ Michael Hsu, DeepSky
9. It’s All About Merit
“If you’re not paying your employees market value, you could lose them to a company that’s willing to pay top dollar for their services, especially with unemployment at all-time lows. As far as determining raises, it’s all about merit. I get quantitative so there are no questions. Are they bringing in more money? Are they producing more? Then they should be rewarded for their output.” ~ Codie Sanchez, www.CodieSanchez.com
10. How Much Value Do They Generate for the Company?
“If I notice that a particular team member is generating substantial value for our company, I will reward them with a raise so they keep up the good work. If a team member comes to me and demonstrates that they are generating greater value for the company, I will consider their request for a pay raise as well. The most important determinant for me is value, and this strategy has worked well so far.” ~ Bryce Welker, Crush The PM Exam
11. Was There a Substantial Responsibility Change?
“Compensation structures should uniquely reward high performance. Excellent employees meet and exceed their goals, and naturally take on more responsibilities. They are standouts and get competitive raises, promotions when feasible, and bonuses when warranted. Employees who generally meet goals, but do not go above and beyond, receive baseline raises.” ~ Saloni Doshi, Eco Enclose, LLC
12. Consider Performance of the Individual and the Company Overall
“Excluding annual raises that are in place to keep up with inflation, raises and promotions should require a comprehensive process that answers two key questions. One, has the employee shown the growth and performance to deserve a raise or promotion? Two, is there a business case that facilitates the raise or promotion, such as a job opening or ability to increase billing rates?” ~ Jonathan Gass, Nomad Financial
13. Review Quarterly
“Instead of waiting a full year to do our reviews, we have started conducting them on a quarterly basis. This helps us understand which employees are consistently exceeding expectations and gives the ability to reward them and keep them motivated, sooner.” ~ Jared Atchison, WPForms
14. Do They Demonstrate the Behaviors You Want?
“When you offer pay raises to specific employees you send a message about the behavior that you want to see more of. If you only offer pay raises based on quantitative metrics, employees may cut corners or act in their own interests versus the interests of the group. It’s best to use a combination of qualitative and quantitative metrics to determine raises so you’re encouraging the right behavior.” ~ Baruch Labunski, Rank Secure
Photo via Shutterstock
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