Exhausted, underpaid and under-appreciated is the current disposition of many workers across the country. The disparity between CEO’s compensation and that of front-line workers is also a constant source of tension, especially in larger corporations. According to the AFL-CIO[1], the CEO-to-worker pay ratio is now at 331 to 1, compared to 46 to 1 in 1983.
Today we have much broader transparency when it comes to staff salaries. More people are aware of what is considered a fair salary for the work they do, which can develop into a dilemma when they become aware that some of their coworkers are paid considerably more. This can lead to some problematic conversations for managers and recruitment personnel. With the ongoing impact of the recession, many employees have not seen an annual raise for some time. Those who have been fortunate enough to receive raises may daydream about the “good old days” (when an annual pay increase meant 5-7%), as they speculate a skimpy 1.5% bump. Regardless of recent constraints, companies that hold salaries below market rates or employ inconsistent compensation practices will face challenges as the job market improves and people start looking to improve their circumstances. Having said that, before you start handing out reactionary raises; make sure you know where you stand. When an employee has done her homework, asked around and finally worked up the courage to broach the subject of salary, there are a few things you might want to find out before responding.
Analyze the Situation
When people feel they are being paid unfairly, money is usually only part of the overall equation. Start with the obvious (maybe they’re right!). It’s important to find out exactly what is prompting the request for an increase, since some underlying problems can be addressed without a salary increase, while others can never be resolved just by throwing money at them.
Is the person who is asking for a raise being paid fairly based on market rates and peers?
Has this employee received another job offer with better pay?
Is there a real financial need that must be addressed in his personal life?
Review Importance of the Role
After analyzing the situation; it’s time to decide whether to grant it. Every job function has a certain value to the business. Employees also bring a distinct value proposition to the table based on their performance and commitment to the organization. Before engaging in the salary conversation, determine the following:
How important is this position to the business?
Is this employee a high performer who adds value?
How much would it cost to find and train someone to take over the role?
How much value would this employee bring to a competitor if hired away from you?
Investigate the Numbers
As with any compensation based question, the numbers will be the ultimate determining factor. Can you afford to offer a raise? Are there any other benefits you can offer, which would serve the same purpose without costing as much? Does the individual employee merit a raise, either for reasons of performance or parity with market rates?
When it comes right down to it, fairness is subjective and dependent on individual perspective. In the end, you may have to respectfully part ways with the employee who feels she is being unfairly paid. Just be sure that your decision not to provide a raise is made for the right reasons. While compensation isn’t the only thing that matters to most employees, fair compensation is “the price of admission” and an essential first step for attracting and retaining the best talent.