An employee approaching you for a quick conversation to request a pay rise is a familiar scenario for most Accounting managers. However, if not handled correctly, it is still one that can be problematic, with the worst-case scenario being the beginning of the end of a great employment relationship. This article provides a clear overview of what to do when it's time to talk to an employee about pay rates and salary negotiation, as well as how to make this scenario easier in the future.
What to Do When an Employee Requests a Pay Rise
If an employee requests a pay rise, always treat it as a serious conversation. Rather than responding immediately, book a convenient time for both parties to sit down and discuss the matter. Doing this has the benefit of buying you some time to think and consider your potential response.
During the meeting itself, remain calm and listen to why the employee believes they have a strong case for a pay rise. It is important though that the discussion is as factual as possible to limit any possible angry, defensive or deflective reactions.
Maybe the employee is of the opinion that their remuneration is below the industry average and the market is paying more for similar jobs. Or perhaps the person’s duties have changed, with additional responsibilities, an updated job description or the need for a heightened skillset. Maybe the company is performing well financially and the loyal employee thinks it is time they caught up on their perceived poor increases from previous salary surveys or reviews. Or they could be going through some personal financial hardships. Let’s face it, there are a myriad of reasons why employees raise requests for increased pay.
In this scenario one of our favourite tips is to use the phrase ‘tell me more’. By doing this you dig down into the detail behind the request and ensure you are armed with the full story from which to make a decision.
After listening to the employee’s reasoning and acknowledging their courage at raising the issue, the next golden rule is to always avoid making a decision on the spot, even if the logical response is an immediate “No!”. Instead, advise them of the process you will take to consider their pay rise request and when you will get back to them.
How to Evaluate a Pay Rise Request
So how do you evaluate an employee’s pay rise request? A good start is to look at the individual’s performance in comparison to the rest of the team to ascertain if they deserve a pay rise. Have they met their KPI’s? Is their performance aligned to the job description? Have they added value to the team and the business? Do they live up to the company values? If possible, consult with human resources or other peers in the organisation that have the expertise and experience to assist in this area.
If you can, it’s worthwhile to benchmark the role internally and also review external data across similar industries together with other contributing factors. Industry salary surveys such as the Richard Lloyd Sydney Accounting Salary Report provide current industry average rates as well as insights on location, company size and other variables that may impact salary.
This research, unfortunately can only provide average pay rates, but the employee in question may not be ‘average’. They might be an over-performer with additional responsibilities or they could have a skill set that is rare in the Sydney Accounting market and therefore may not easily fit into the average salary bands that work for most of the team.
If the company is financially unable to offer the employee an increase but you believe they still deserve a pay rise, then perhaps there are other options you could consider? Perhaps non-monetary incentives such as extra training, holidays or flexible hours would work in lieu of a salary negotiation.
The final piece of the puzzle is to fully understand the implications should you have to replace the employee if you can’t give them what they want. If you think you have no ‘wiggle’ room for a pay rise because of budget constraints consider the cost of your time, possible cost of recruitment and the possibility you may need to pay more to a new employee. Suddenly, as long as the individual is worthy, a small pay rise might be the best approach!
How to Respond to an Employee Pay Rise Request
When it's time to talk, always be considered in your approach to the delivery of the pay rise response. Explain your process, talk about your research and your discussions with HR and Senior Management.
If you’re delivering bad news to a salary increase request, we recommend providing feedback promptly and succinctly in a private environment to ensure your employee understands the reasons behind your decision. Ensure this is carried out in a positive manner that doesn’t discourage them from initiating a similar pay rise discussion in the future, as this helps to foster an open relationship based on trust. Also allow them time to digest the disappointing news and ask any questions they need to before rushing them out the door.
Should the response to their request be positive, make your reasoning obvious and also explain that this is a unique case and not the norm. If you don’t make this clear, you can run the risk of other employees who don’t necessarily deserve a pay rise also seeking pay review meetings.
Lastly the response does not need to be a definitive “yes” or “no”, there is a third option. A “not right now” is the official “maybe” clause. Perhaps map out a way to move forward, discussing what they need to do to get to that next stage in their professional development and be financially rewarded for it. It could be undertaking additional responsibilities, changing their job decsription to encompass greater accountability or offering them a new temporary project.
How to Plan for Future Situations Where an Employee May Ask for a Pay Rise
To ensure you are well-prepared for the future when staff raise requests for a salary negotiation, it is a good idea to put a plan or policy in place. This plan should cover how pay rise requests are dealt within the organisation, including a self-evaluation form to be completed with every request. This can help to avoid ‘ambush meeting’ scenarios where the manager is accosted at unexpected times to discuss pay rates. It also makes it easier for employees who may not have the courage to request a raise (and therefore just quit) to bring the issue to your attention only after putting thought into their request.
Unless there are extraordinary circumstances, it is most common and appropriate to consider and communicate salary pay rises on an annual basis during the performance review season.
A pay rise request may be an indication that an employee is dissatisfied and ready to start a new accounting job search. It is important to note that not every employee will be direct about pro-actively discussing a raise in their salary. Some may drop subtle hints around salary or even mention they were approached by a recruiter, others may do nothing at all. Keep an eye out for these indicators and be cognisant of also identifying and addressing the salary needs of those who don’t ask.
The right response to a pay rise request will depend on a number of factors; the business, the budget, the job description and of course the employee in question. Providing you’ve been thorough in your review process and clearly presented the reasons around the decision, for or against, then most employees respect you for tackling the issue with empathy and credibility.
At Richard Lloyd, we have our pulse on the Sydney Accounting market, if you’d like to discuss specific benchmarking data for a role in your Accounting team or for yourself please feel free to get in touch with our team.
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