There are good ways and bad ways to say no to a pay rise request. Of course, employees are going to be disappointed at having a pay rise request turned down. Performance reviews and pay rises are an excellent way to drive career progression and retain your key people. However, if a pay rise request is turned down badly, it can be one of the fastest ways to lose key talent to competitors or contribute to an employee’s disengagement.
So what is the good way to turn down a pay rise request without demoralising your employee?
1. Consider the request
- Generally, there is no entitlement to a pay rise (subject to increases in minimum award rates). To flat out deny a pay rise request without proper consideration and explanation can leave an employee feeling like there is no point in remaining with you as you don’t care about them as much as you do about yourself.
- Objectively, does the employee deserve a pay rise, based on their performance? What is the fair outcome for both parties? Consider market rates and subjective performance.
2. Clearly explain the reason for turning down the request
- Any discussions around salary should be well informed, open and transparent and based on measurable KPIs/milestones.
- The result should be fair for both employer and employee.
- Give the employee a genuine opportunity to respond.
3. Consider alternative incentives
- Where the firm cannot provide a salary increase, consider alternatives such as performance based bonus structures for exceeding budget or KPIs.
- Non-financial rewards such as mentoring, flexibility and verbally acknowledging good work.
4. Plan for the future
- Discuss promotional opportunities and set clear expectations as to how to get there, or risk losing your top performers.
- Do not change the goal posts.
- Set clear performance goals for the year ahead. This will ensure the next performance/salary review is well informed, open, transparent and based on measurable KPIs/milestones.
Case Study
Nicole was approached by an employee who had been working well in her design firm. The employee asked for a pay rise as they had been there for 18 months. Nicole knew the employee was one of her best workers but that the business wasn’t in a financial position to give anyone a raise at the time.
What JFM Law did for Nicole
JFM Law was approached by Nicole and advised her that she can decline to provide a pay rise, but to retain good employees such as this one, she must have measurable goals and provide feedback. In this situation, a performance based bonus structure was created in Nicole’s business for rewarding employees who exceed their KPIs.
The information in this article is current at the date of editing – 20 September 2024.