5 Key Factors in Determining Whether to Give an Employee a Raise

Good employees expect and deserve to be rewarded financially from time to time. While many companies opt for the traditional, inflation-matching annual raise, there are a lot of great reasons to expand that approach and compensate your staff based on merit.

Not only will giving raises when and where they’re earned increase your appeal as an employer, improve retention, and build up workplace morale, it can elevate employee productivity.

Here are 5 key factors that will help you determine whether to give an employee a raise.

1. Consistency of Performance

It’s easy to take an employee who always works hard and achieves their goals for granted, but you overlook their innate value at your peril. Estimates for the cost of replacing an employee range from 40% to 150% of their annual salary – not to mention the disruption their leaving may cause, and the challenge of finding an equally talented replacement. It’s in your best interest to hold on to great staff by paying them what they’re worth.

2. Impact in the Workplace

Measurable, data-driven outcomes aren’t everything when it comes to determining an employee’s value. Soft skills are equally important. Team members who excel at managing their time, solving problems, or dealing with conflict, for example, are probably making a bigger, more positive impact on your workplace than you realize.

3. Company Loyalty

If you have an employee who’s been with you for a significant amount of time, chances are it’s because they’re good at their job. Rewarding their long-term service is a great way to acknowledge (and hang on to) the invaluable level of business-specific experience they’ve accumulated along the way.

4. Hard-to-Replace Talent

Some roles are so unique, complex, or challenging that it takes an employee with certain skills or experience, patience or persistence, to carry them out consistently well. If you have a team member who would be difficult to replace, it’s important to stay on top of what the market (and especially your competition) is paying for similar work or abilities, and pay them accordingly.

5. Role Expansion

While you’re not legally required to give an employee a raise when you assign additional duties or bestow a greater level of responsibility on them, it’s unfair to expect them to accomplish more every day for the same pay. If you’re simply keeping up with inflation rather than rewarding staff for taking on bigger challenges, don’t be surprised if they use their hard-won skills and experience to find better-paying employment elsewhere.

How Much of a Raise Should You Give?

If you’re considering increasing an employee’s pay based on one of the factors described here, start by looking to see what their wage or salary is now, what the market is paying, and when they last had a raise.

While the average raise across Canada was 2.7% in 2019, you should check your budget to see what your business can reasonably afford – then compare that against the value your team member currently provides, and the estimated cost to replace them.

Remember, not only is any employee more likely to contribute meaningfully to your company’s success when they feel recognized for their performance, showing you appreciate their work by raising their pay will help you hold on to valuable team members.

If your budget won’t accommodate an increase in pay right now, you can still boost employee satisfaction in smaller ways – by awarding a monthly gift card, for example, or treating team members to lunch now and then.