How To Create a Raise Policy

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In most cases, employees anticipate receiving a raise after working a certain amount of time at your firm — usually, six months to a year. Top performers who consistently exceed expectations expect to be paid a salary that reflects their hard work and level of responsibility. You look to offer competitive compensation to retain your best workers.

How do you keep raises within your budget? By seeking the right mix of compensation while keeping an eye on your bottom line, you can:

  • Be transparent. Be upfront about what you can offer. If your business budget allows only a 3% increase, let each employee know in one-on-one meetings. They’ll understand that you’re doing your best and feel satisfied that they’re receiving the largest pay increase possible.
  • Offer bonuses instead of salary increases. You’ll save money in the long run. Base bonuses on performance and experience, showing you value their contributions. You can also tie bonuses to sales or production volumes. Offering regular bonuses can increase employee motivation. See it as instant gratification, a useful tool for rewarding productivity and success in the workplace.
  • Check what competitors are doing. What kind of salaries are they paying? How often do they offer raises? How much do they budget for an average salary increase? Gathering intelligence can help you compete for new hires and negotiate more effectively with your employees. Research the average pay rates for similar jobs in your area with data from the U.S. Bureau of Labor Statistics.
  • Keep raises consistent. Being fair and equitable in giving raises is crucial. Providing higher raises to higher-paid employees or allowing bias to influence your decisions will cause conflict and dissatisfaction among your workers. This isn’t just important for morale — the Fair Labor Standards Act contains rules on equitable pay.
  • Establish clear criteria. Give guidelines that let employees in on how you determine raises. This reduces the influence of personal bias and ensures all managers use the same criteria to evaluate employees. Explain the criteria to employees to help reduce the risk of perceived bias, protecting your firm should disputes occur.
  • Use benefits to reward hard work. If you can’t offer more money, acknowledge accomplishments with additional time off, more chances to work remotely or a new workspace at the office. Consider a travel stipend. Tuition reimbursement is another way to show employees you’re invested in their success.

Costs to your company rise when salaries increase. And though you’d like to give everyone a generous raise, you may not have the money in your budget. Look for times to thank employees for extra work with a combination of incentives.

Suggestions for distributing raises

  • Rewarding seasoned team members with a pay raise if they assist with training or serve as resources for their peers.
  • Offering a raise or extra benefits when employees finish their training period.
  • Recognizing years of service milestones with pay raises and/or more benefits.
  • Acknowledging employees who’ve added a new skill set or obtained a new certificate related to their job duties.
  • Keeping your pay rate in line with current trends.
  • Keeping your pay rate in line with the cost of living, as it may rise dramatically. Raises allow employees to maintain their standard of living. You can consult the Consumer Price Index for guidance.

Salary increases help improve employee productivity and satisfaction. Use raises and added benefits to encourage an employee to stay, making a continued commitment to your team. Salary increases can also serve as a thank-you to an employee for overcoming a significant challenge or bringing in an impressive client.

Take the long view

Also, you may want to ensure that long-term employees’ salaries don’t fall behind new hires —give older employees at least a little more. Show your entire team how you treat employees who exceed expectations. If you consistently reward superior performance, you’ll strengthen your relationship with your team.

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