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Total Compensation

Trying to Determine Employee Pay Raises? Consider These Key Factors.

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In the final months of every year, managers and HR are busy prepping for year-end performance reviews, and along with those reviews inevitably comes questions around compensation and pay raises.

Pay raises are one of the reasons why employees will choose to stay or leave their current position. Remaining competitive requires a focused compensation management strategy and that includes a plan for determining pay raises—who gets them, and by how much.

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Providing a fair pay raise includes recognizing both the gender and diversity pay gaps, along with cost of living. But there are other factors common to the pay raise discussion businesses must take into consideration, and it’s those factors we will consider in this post.

Compare Salaries with Market Rates

When considering employee pay increases, management and HR should begin by comparing the salaries they currently offer employees to the average market rates—this means you need to compare the salaries you offer a particular role, to what that same role is paid at other companies.

Knowing the standard salary for different roles will ensure your business can remain competitive, as attracting and retaining talent has become increasingly difficult in the current market.

In doing this kind of research you might discover that a top-rated employee is being paid less than the average for their role, this discovery can help in the decision to offer a pay increase, as keeping your employees’ pay competitive will also help with retention.

Maintaining up-to-date salary data will ensure when the time comes to consider pay increases, you have the information you need to know regarding where your employee’s compensation stands within the overall market.

Skills and Responsibility

When we talk about skills and responsibility regarding potential pay raises it’s important to note that both will vary depending on how long an employee has been with the company, their role, how many years they’ve been in that role and their hierarchy within your company. It’s safe to say an employee who’s been with your business for over ten years will likely have more skills and responsibility than a relatively new hire.

But this isn’t to say that an employee filling an entry-level position shouldn’t be given the same kind of consideration when it comes to deciding on pay raises. In fact, taking an in depth look at employee skills and responsibility can be quite the eye opener. There’s a strong possibility you may discover lower level employees who are taking on more responsibility, working on improving their skills and focusing on their overall production levels. Comparatively, you may learn that more established, higher-ranking employees aren’t putting in that same kind of effort.

Employee’s who actively work on professional development, volunteer their time to help where ever possible and take initiative are employee’s you want to keep, and a pay raise can help with this.

Consider Other Employees’ Opinions

Quarterly or year-end reviews should include feedback from each employee’s team members and any other teams they work with on a continual basis. This information is invaluable and should be used when considering employee pay raises.

How an employee’s team and peers view them and their work ethic, skills and abilities provides insight that management may not have first-hand.

Of course, peer reviews should be organized—to do this provide team members with a survey that asks specific questions to prevent unhelpful bias.

Peer evaluations can help management and HR determine which employees are showing initiative, growth and even engagement.

Evaluate Performance Against Quarterly / Yearly Goals

Another key factor to consider when working on pay raises is employee performance. Quarterly and year-end reviews generally include goal setting and an evaluation as to whether those goals have been met.

There has been much debate over the years as to whether performance reviews should be tied to pay raises and whether they are even a useful part of employment. While both sides of each argument make strong arguments, considering employee performance when debating a pay raise remains essential to determining who gets one, and how much that raise should be.

During employee performance reviews, employees must be provided an opportunity to speak to the work they’ve done during the quarter or over the course of the year. Major projects, accomplishments and goals achieved should all be considered when discussing pay raises. However, when discussing goals, it’s important to ask why an employee may not have met a goal, what circumstances may have prevented them from reaching it, and whether the effort was actually made to achieve it.

While evaluating an employee’s work performance is necessary criteria to consider when debating pay raises, it shouldn’t be the only consideration.

Pay Raises Start with a Plan     

Every company will have different key factors they’ll consider when debating pay raises. What’s important is to understand why you’ve chosen them and how you’ll evaluate each one. Regardless, employee pay raises must begin with an organized, detailed plan in place to ensure all the important factors are being looked at. Using HR technology like an HRIS is the best way to organize your pay raises because it enables you to track goals, performance, evaluations and past raises, as well as house company-wide salary information.


Jordan Rinaldo

Jordan Rinaldo

Jordan is the AVP of Marketing and Digital Strategy at Apri Group of Companies. He has effectively parlayed his sales and account management experience into the digital marketing space. Focused on helping businesses grow through digital strategies, Jordan has worked with clients in both the B2B and B2C markets. A proud graduate of St. Francis Xavier University, Jordan has a BA in political science with a minor in economics and history. He’s an avid sports fan, music enthusiast, and cinephile.

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