An Owner Seeks Advice

Dear KK:

My company has not performed formal performance appraisals for our employees for several years. Prior to the recession, we used to give raises along with the evaluations.

Because of the poor economic conditions we have not been able to provide raises because we did not have the money. We did not lay anyone off, but we did not hire new people either; if someone left we moved around the workload as best we could.

Maybe our industry recovered later than others, I am not sure. But in the meantime, we have recently lost some good employees to competitors and morale among the remaining employees is not where I want it to be. I believe that happy employees make happy clients.

Things are getting better and we will now be able to give some people increases. But not everyone has earned a raise. How to I deal with this?

Signed, Bill V.

Hi Bill,

Many companies are right where you are; they are just now starting to see daylight on profitability.

Don’t think you went through the Great Recession by yourself. I admire that you want to reward those employees who have stuck with you and taken on the extra work to help the company get through the challenging times.

It’s a great thing to share your profits with others who have worked hard to help create them with you.

You need to proceed with caution and understand before you get started, not everyone is going to be happy with the outcome. You will not be able to please everyone and that is just how it is. You may have some sleepless nights and you may even lose some employees before this is over.

The biggest mistake you can make is announcing that the company is giving raises. Everyone will assume they will be getting a large increase after receiving no raise at all for more than a few years.

If you want to provide raises based on seniority (tenure) understand that thinking is outdated. It is also dangerous because it telegraphs to your employees (current and future) that you value tenure over contribution.

Tenure is not loyalty. For some employees, staying with a company for many years means loyalty but only because of the steady paycheck and benefits.

I’ve known employees who contributed more to a company in three years than others did in twenty.

And don’t assume your managers are more deserving of a raise than other employees. Do your best to take into consideration not just the recent past when thinking about whom gets raises, think about the time period since you last were able to give pay increases.

Start by taking a list of all your employees then take each name and place them into one of two columns. The first is the list of those deserving of a raise and the second is the list of those who do not. How do you decide whom goes in which column?

Some employees have made minimal contributions. Those are the employees that have just done enough to keep their job. You may have even considered letting these people go if you were going to reduce your headcount.

Others have contributed more than others, and those names go in the first column.

Go back to the first column and resort it, from highest contributor to lowest. Why? Some people deserve a larger raise in pay than others. Take your budget and allocate it until you feel comfortable that the money has been divided properly based on contributions to your company.

I hope this gives you a good start on the path of providing raises to deserving employees.

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