How To Respond to an Employee’s Request for a Raise — If You Can’t Afford It
Asking for a raise can take a lot of courage (at least it does for most people). It’s likely something your employee has thought long and hard about before approaching you with the ask, and they will feel nervous and vulnerable in doing so.
As someone on the receiving end of that ask, it’s important to be respectful no matter what the outcome will be. Here are some ways to handle a request for a raise when you’re not able to afford it.
What To Do When an Employee Asks for a Raise
- Listen – First things first, hear them out and give them a chance to talk. Ask follow-up questions so they know you’re taking their request seriously.
- Schedule a follow-up meeting – Next, resist the temptation to say yes or no on the spot. You need time to think about the request in relation to your business goals and their performance. If they’re deserving of the raise but you can’t afford it, develop a plan to get you both where you need to be and schedule a follow-up meeting in roughly two weeks.
Then be prepared to be transparent and forthcoming about the situation. In many instances, an employee’s request for a raise could be a clue that they’re starting to shop around for a new job. If you really want to retain this employee, it’s worth doing everything you can to keep them, even if that means just being honest with them for now. As you prepare for your meeting, do research on salary ranges for this particular role, review your P&L statement and identify some clear benchmarks you’ll need to meet in order to feel comfortable offering a raise.
- Discuss goals and alternatives – At your next meeting, start again by listening. Then share your thoughts. Maybe it’s that you only do raises bi-annually. That could be in just a few months. Set weekly meetings to better engage with them and track performance. Dig into what this employee has already done for the company, evaluate KPIs and set new goals. A conversation about goals and performance can then parlay into an end-of-year discussion about a salary adjustment. If a raise is just not in the cards, perhaps you could swing a one-time bonus, gift card or even more time off.
Conversations about salary should be part of your routine business practice. Speaking openly and honestly about performance and compensation can sometimes make people feel awkward, but developing a fair process for all team members can make these conversations easier for everyone involved.
