“Every year on an employee’s anniversary I give them a pay increase of $1.00 per hour. However, now their pay is getting a little too high for the work they are doing. What can I do instead?”
Your HR Survival Tip
There is a difference between rewarding employees for sticking around versus rewarding them for their work. Your method is paying employees for sticking around … and nothing more.
Rewarding employees for taking on more responsibility, helping you reach your goals to grow the business, doing their work faster or better, or learning a new skill makes more sense. When you reward employees this way, your company also does better because your employees are bringing more to their jobs.
When the recession hit in 2008, companies dropped the percentage they were giving for pay increases and some even stopped increases for a time. It’s now several years later and we’re still seeing only 2-3% pay increases each year. Unfortunately, it doesn’t look like that range will increase in the near future.
Most of the time, an increase of 2-3% is barely noticeable to a non-exempt employee … and could even tip them into a higher tax bracket that results in a lower net pay. Let’s be honest; these tiny increases aren’t viewed favorably by employees. Demotivating your employees wasn’t your intent but you also can’t keep paying larger increases without eventually overpaying.
It’s time to consider a bonus program that rewards high performers. You don’t guarantee annual raises. You only provide bonuses to employees who really step up and go beyond their normal job. The bonuses don’t increase the hourly wage; these are extra checks that reward behaviors you want to encourage.
You don’t need to stop all raises but you do need to think more about why you are giving that specific employee that particular raise. A raise should never be about the fact that they’ve managed NOT to be fired. A raise should be a reward for doing something more and doing it on a consistent basis.
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