Whether a person has stayed with a company for many years, demonstrated their ability to surpass expectations, or developed talents that make them more valuable, there are periods in any employee’s career when they deserve a raise.
While many companies provide raises at performance reviews and at the end of the year, on-the-spot raises are becoming more popular because they provide employees with immediate feedback, incentivize hard work, and keep the entire team engaged.
Raises in the corporate world typically range from 3% to 5% of an employee’s yearly income, which is a much lower cost to a company than replacing an employee, which can cost up to 20% of their annual compensation. This, however, may not always be possible for a small business on a budget.
Here’s how to help your company determine the amount of a raise their staff should receive when the time comes.
Criteria for salary increase
Employees may be entitled to a pay raise for a variety of reasons. Here are five things to think about before giving an employee a raise and deciding how much to pay them.
- Cost of living.
Wages should be adjusted to reflect increases in the cost of living as they occur across the country. The cost of living is calculated by the Consumer Price Index, and increases are known as cost-of-living adjustments, or COLAs, according to the Social Security Administration (SSA). The SSA estimated that the annual COLA will be 5.9% in October 2021, the highest rise since the 7.4% jump in 1983.
While cost-of-living raises take effect company-wide regardless of performance, there are certain situations where an individual should receive a cost-of-living raise — such as an employee moving to a more expensive city.
Employees who perform well should be rewarded for their efforts; otherwise, they may feel undervalued and seek new chances. Turnover may have a detrimental influence on a company in a variety of ways, from staff morale to the bottom line.
Raising salaries encourages talented people to stay rather than go to a competition. Employees want to know that the organization they work for values them. Giving those high-performing employees a raise demonstrates your appreciation and increases the likelihood that they will remain loyal and devoted to the company.
Employees who take on a new job or responsibility, such as learning a new skill or earning a qualification like becoming a certified public accountant, are given merit-based raises (CPA). Merit-based raises should be provided to employees who best match your company’s goals, add the most value, and perform the most in their roles, according to Patriot Software.
These raises are a great way to incentivize a whole team, not just the person who gets the raise. It demonstrates to the rest of the workforce that their efforts will be recognized and rewarded if they work hard.
- Length of service.
Throughout its operations, every company has good and bad times. Employees who have persevered through difficult circumstances may be rewarded with a raise by their employers.
Employees are rewarded for their loyalty and devotion to a firm over time with raises based on length of service, which may be related to an anniversary or other noteworthy milestone. While a changing labor market has made these raises less popular, they are still an excellent way to show appreciation for an employee’s hard work and devotion.
Performance-based increases show that management is aware of an employee’s consistent efforts and wishes to reward them for their efforts. These kind of raises demonstrate that dedicated employees’ efforts have been recognized, and they encourage other employees to put in the same amount of time and effort so that they, too, can be rewarded.
Performance-based raises motivate employees to keep up the good job by demonstrating that with the correct amount of effort, the company can grow.
Set up a no-obligation call with a SWHR and let’s talk about how we can help you build an amazing team culture.