Why you should give employees a raise

23 Jul

Holding back on raises can be a costly decision.

Many companies attempt to curb costs by saying "no" when employees ask for raises. In the short term, this can seem like a smart idea. If you can keep a great employee around for the same price year after year, why not continue to do so? However, there are a number of problems with this approach. In the long run, it can have a negative impact on business. It's time to take a look in your employee management system and reassess your team members' salaries. 

Retain the best talent
The demand for certain skills continues to grow. If you don't give employees consistent raises, especially when it's deserved, you may be surprised when your top software developer hands in her two-weeks notice. Keeping those with the most in-demand skills could rely on paying an appropriate wage and increasing it over time. 

Staff will be thankful 
If you don't reward hard work, staff has less of an incentive to continue to do their best. The worst situation is when companies continue to pile more work on staff without adequately compensating them for it. As Inc. magazine pointed out, giving employees a promotion without the corresponding raise happens to be common practice, but that doesn't mean it should be. More work for the same pay may do the opposite of what you want and cause your staff to slack off.

They may need the money
In some cases, the need for a higher salary has little to do with prestige and more to do with financial need. According to a study from the American Psychological Association, 72 percent of adults are stressed about money at least part of the time. Could a low salary be contributing to the situation? If you want to keep workers around and help them achieve their best, paying a viable salary is important.

Turnover is costly
Managers may think they are being smart when they deny a pay raise, but the decision could come back to haunt them. According to Inc., companies may spend 150 percent of the employee's salary just to replace them. When you look at potential replacement costs, a raise seems like a small price to pay to keep an employee on board.

Revenue impact
Holding out on raises because you're thinking about the bottom line may not be the right perspective. A study from the Academy of Management Perspectives compared Sam's Club and Costco, which are competing companies. Costco pays its employees a full 40 percent more than Sam's Club and still remains profitable. If you reduce turnover and increase efficiency at the same time, the impact of a few raises should be minimal.

Not every employee deserves a raise, but there's no reason to hold out on your top performers. While staff may love their positions, they are there to make a living, which often means supporting a family. You need to consider the potential costs of replacing great team members if they seek a position elsewhere. 

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