When to Raise an Employee's Pay
I pay him average pay for above average work, and he hasn't asked for a raise, but the longer I know him, I don't think he would. Should I just give him a raise? How much? Wait till he comes to me? He seems to like his job, and good jobs are hard to come by here. He tells me all the time he has no desire to be self-employed; he just wants his 40/week and to go home. I don't give benefits, but do withhold his taxes and have worker's comp, etc. by the book.
An ad may cost you $200-$2400 by the time you replace someone, then there is the cost of training him and the production you would lose while training him. If he is above average, then pay him above market rates.
$1 per hour is about $2000 per year. If you sell 200,000 per year, the raise costs you a small percentage of sales. If it took two months to replace him, what would the decline in productivity/sales/income cost you? If any of your vendors give you gifts, you may want to give them to him every now and then.
From contributor I:
You must give this man a raise, immediately. Only your own accounting procedures will tell you how much of a raise you can afford, but I suggest you think in terms of how much rather than how little. Good attitude is priceless.
From contributor D:
If you can afford it, give him a raise. Should you ever get to the point of having more employees, you will realize have valuable an employee he is. And that you need to reward the kind of behavior and attitude that helps your shop make money.
From contributor S:
By all means, give him an increase and buy him lunch and tell him how you feel about his efforts. Money and acknowledgement are important to reward his work, to keep him interested in working for you, and to keep him motivated to continue improving the process.
In 18 years of working for others, I tried to do my best, and was almost always the highest paid employee in the shop, getting there faster than anyone else. I never asked for a raise except once. When I didn't get it, I left.
As an employer for 10 years, I have never had an employee ask for a raise. I have always tried to stay ahead of the curve. I have never lost an employee I did not want to lose. It is a guessing game, but it is far better to reward and err on that side, than it is to fall short and lose this asset to your business. You don't have to go far to hear all sorts of employee horror stories.
From contributor H:
A new broom sweeps clean. At eight months, he's still in that mode. For now, I would give him a few perks. You pay for coffee breaks and maybe lunch. But at one year, he is very deserving of a raise if he still works at the same level. Good employees are very hard to find and every effort should be made to keep them on your ship, but not at the cost of sinking.
From contributor K:
I think you need to do two things: First you need to sit this young man down and give him some honest feedback about his performance. In his case, that's a great pat on the back. Every one of us has worked for an employer that we busted our hump for who never acted at all like they appreciated our going the extra mile. I don't think we or our employees should seek praise, but it sure is nice when we get it. For a lot of employees, that's the kind of thing that earns you their loyalty. Second, I think you should give him the raise.
My inclination is usually in line with contributor H's comment. If all is going well, the one year point is a good time to sweeten things up a bit. Your guy, however, has obviously done superior work and has an interest in his occupation. Those people are rare and you don't want to lose him. My concern would be this guy catching the eye of another shop owner and them offering him a deal he can't refuse. Also, he might not be interested in running his own shop, but I've seen situations where a person comes along with some capitol they need to invest and bankrolls a guy like yours. There's a shop near me where that occurred. A guy just like yours, who had no money or aptitude for the business side of this game, had an offer to do the 60/40 thing. Now, he runs the shop, an accountant keeps the books and pays the bills, and the investor spends a lot of time in Aruba. I'm trying to get this investor to adopt me :-).
From contributor Y:
I worked for a cabinet shop for 6 years. We never had to ask for a raise. We got one once or twice a year. It was never unusual for him to give bonuses of $600 to $1000 once or twice a year. One week off at Christmas with pay above our vacation. This guy said that if his employees did good work and made him money, he would take care of them. And he did. This was 1978.
It sounds as though your guy is a very good worker and you should let him know that you appreciate it. And, give him some money.
From contributor J:
I never give a raise to a person that does not ask for one. I do this because I feel that it helps employees learn to communicate with me and helps them understand that our relationship is business related and not me looking out for them. Nobody calls me and says "Hey, we know that you have not sent us a bill, but we just wanted to pay you because we think that you have done a great job for us."
All employees are informed of this policy and when they think they have been doing well, they ask for a raise. I almost always give it to them, because employees know when they have been more productive. I have had employees that I knew wouldn't ask for a raise even though I thought they deserved one. The conversation went something like this:
(Me) Paul, if you asked for a raise I would give you one.
I try very hard to take care of my employees and to make them feel like they are important to me because they are. But just giving them a raise does not develop the kind of communication with my employees that I desire.
From contributor B:
It has happened to us many times that someone has called because they haven't received a bill and want to pay us because we've done a good job for them. While there are many ways to operate a business successfully, I have to scratch my head at your policy of no raises without an employee requesting one. As an employee, I have always respected my managers that valued my efforts and raised my pay without my asking.
The relationship between your business and your clients is not the same as between your business and your employees. If you want to promote communication, I would think you would want to lead by example and initiate communication, rather than waiting for the employee to initiate it. What kind of message are you sending? If I was your employee, I'd guess that your policy was designed to take advantage of your employees to the greatest extent possible, pay-wise. To me, that's not a recipe for good communication, that's a recipe for employee-manager hostility and distrust.
From contributor O:
I have been in this business all my life, and have worked for myself and many other people. When I work for someone else, I will never ask them for a raise; if they cannot see and determine my value to their company, I will seek a raise from another employer. The posters who recommended that you give this person a raise, and the reasons why, are right on. Think about how you would feel as an employee, and try to become an enlightened employer.
From contributor E:
While communications are very important, so is acknowledgment of good work. I have not asked for a raise for 20 years and I never will again. It is my job to properly manage my department and crew. It is my employer's job to recognize my efforts. I have gotten raised right out of the blue, totally unexpected and at odd times during the year when they are not normally given, so I guess we are communicating properly. If I have to ask for a raise, there is something wrong, and by that time I will have one foot out the door anyway. So you do your job and recognize his efforts and he will do his job by continuing to be a valuable asset to your operation.
From contributor J:
Sitting around waiting for an employer to give you the raise you deserve is not good communication. I want my guys to feel like they can talk to me about anything pertaining to the shop, their wages included. Way, way too many times I have seen disgruntled employees leave because they are waiting to be recognized by a boss that is managing 20 guys. The boss usually offers them a raise to stay, but by that time it is too late; the damage is done. I don't believe that this is the best situation for all involved.
My guys know from day one that if they want a raise they have to ask. I do not keep this a secret nor do I make this difficult to do. I have no way of knowing what an employee thinks unless they tell me. The key is to make it a non-threatening situation. They know if they have a problem or suggestion that I will listen and try to make things better for them but I do not try to guess what they are thinking.
I have never lost an employee that I wanted to keep. I treat my guys well. We play slingshot paintball at break, we go to lunch 2 to 3 times a month. I just bought a pair of $400 skis for an employee as a bonus right out of the blue. A couple of weeks ago I bought tickets to an NBA game for one of my employees and his wife, good one too. I have purchased wedding rings for employees that didn't have the money and let them slowly work it off.
I help my guys and they work hard for me. I have enough guessing to do with estimating and time frames of general contractors that I don't need to play mind games with my guys; we are all on the same team. If they think they deserve a raise, they know they need to ask. If I think an employee deserves one, I will help him ask, but he will still ask.
From contributor I:
I'm glad I'm not the only one that wasn't too happy with making your employees ask for a raise. The problem from the employee's perspective is, what if the raise is refused? Deep loss of face situation. Better not to risk it, better to have a look around for a different job. On a more general note, I wonder how many employers actually offer their employees an opportunity to air grievances without making a big thing of it. I've been in this situation in the past, where I've had a problem and the only thing I can do is to either complain formally, or to put up with it, or to leave. I usually took option 3.
From contributor T:
You made an interesting point:
"offer ... employees an opportunity to air grievances without making a big thing of it."
This is a great idea! The only time these little chats seem to occur is when one party to the meeting is not getting his or her expectations met. There's often some stress associated with meetings like this, so people tend to avoid them till the situation
From contributor M:
I believe in paying people what they are worth, but don't make the mistake I keep making! I pay too much too soon and this can create another problem. I have a person who gets $17 and is probably worth $13 - $14. It's not his fault - it's mine, so I try to not even think about it. That's very hard when you are really under the gun to stay on schedule.
From contributor B:
Contributor J, it sounds like you've fostered a great work environment. And your point about making pay discussion non-threatening is a very good one. I think you are right, that is the key. It seems, though, that you approach bonus differently than pay - you'll give bonuses "out of the blue." I would argue that this achieves a similar effect to an employer initiating wage increases. What matters is that the employee realizes that his/her manager is paying attention and appreciates their efforts.
Contributor T, regarding your implementation of a monthly 10-minute review of your performance by your employees, I have to say that I don't recommend it. I've tried this sort of thing in my previous life as a middle manager, and it didn't work well. Because:
Now there are multiple other factors that could have been involved in making my past experience less than fulfilling (for anyone), not the least of which may be poor communication skills or management on my part that didn't allow for those meetings to be very productive. I guess I would suggest that if you want to implement something like that, make it quarterly or biannual, allow for more time, and maybe do it away from the shop.
From contributor J:
Yes, I do approach bonuses differently than raises. And I do use them to let people know that I am watching and know what goes on. The reason that I do this is because with a raise, employees tend to get more bills. They have more stuff but don't have any more disposable income, so they feel just as poor before the raise as they do after the raise. This makes the desired effect of helping them to feel appreciated short-lived. A bonus will give them disposable income right now. It will not get budgeted into a new truck - it will go toward something that they have not been able to buy like a big screen or whatever.
I do not use bonuses for wages. I use them to show appreciation for extra effort. This does two things for me. 1 - does not lock me into paying a guy more than he is worth for years because he stayed late for a week to help get a project out. Lets me pay bonuses when I can and not when the calendar says I should. There have been many times when I didn't really have the extra cash to pay a guy a bonus right when I thought he earned it. But we are not on a bonus schedule - if they happen, they happen, and if they don't, you still get paid a fair wage.
From contributor S:
In 38 years in business I have never had an employee who was bashful about demanding a pay raise. I have now retired, and come to find that I all along paid top dollar in my area, yet any time we were really loaded with work to the point that one of the 2 employees quitting would put me in a huge mess, that's when they ask for a raise, with the inference that they might quit if refused.
I learned to stay away from the predictable raise and bonus. Typical problem... First Christmas they are pleased as hell with the bonus. Second Christmas they are hoping it happens again this year, and hope it's more than last year. By the third year, they have already spent the money before they even see it, and are pissed if we had a down year and there was no bonus. Nothing backfires worse that a counted on bonus that doesn't materialize.
Employees all think the boss makes too much, even if he's making less that they are. I learned not to get too personal, keep an arm's distance and just try to be fair. A small shop gets to be like a family, till the dollar enters the picture... then it's like the bratty kids fighting over the inheritance!
From contributor W:
Boy, what is being discussed goes against everything that I have been taught about H.R. Raises occur as the result of a performance appraisal. Performance appraisals occur at predetermined times. (After probationary period, anniversary of hire date, new job responsibilities.) Staff performance is being measured on objective and measurable indicators. Those indicators were discussed at hire date and performance expectations were clearly communicated. When it's time for a performance appraisal, staff are not surprised to hear this score because there has been discussion about their performance throughout the year.
Peak performers get bigger raises. Poor performers get no raise, but have one chance to improve over the next three months. Raises do not need to be asked for. All things need to be predictable for staff, no surprises. Staff also need to know that the process is fair. No one should be making more money simply because they had the comfort and confidence to ask.
From contributor C:
Let me add a little something I learned recently. A raise increases the employer's costs in multiple ways: increased paycheck to employee, increased SS payment, increased worker's comp bill, etc.
Someone suggested paying for some of the benefits, such as health insurance, instead. Figure out how much the employee would have received if you gave them a raise. Then, pay that much towards one of their benefits.
From the original questioner:
The man got his raise today, after I told him how much I appreciate his efforts and loyalty. Thanks for all the help.
From contributor F:
Glad to hear you gave the guy a raise. Hopefully, he will continue to be a good, hard worker and be loyal to your company.
With that said, treating an employee with respect and showing appreciation when it is deserved is the best way to keep someone around and working hard. I think raises are the best way of showing that. Bonuses are another good way, but when they don't come, I believe it hurts morale if that is the only method for an employee to have an increase in salary. Pats on the back are good as well and let them know they are doing a good job, but that will only get you so far before they will walk.
For the couple of you who don't think raises are a good idea, why do you feel a person shouldn't be able to afford more year after year? If you're one of those that runs around in your fancy car and drives home to a big, fancy home, that's a hard thing to preach without looking like a hypocrite or being a tightwad. Yes, as a business owner, you should benefit from it, but don't deny your employees the privilege of being able to afford a little bit more every year. It isn't for you to decide how a person spends their money. In my opinion, if a person's salary has remained the same, or increased very little, over a number of years, it is time to move on. This is provided he feels he has improved in one form or another.
As far as benefits, they are nice to have and a necessity for some. Personally, in all the years I had good health benefits, I rarely used them. If I didn't receive good raises because of that, look at all of the money I lost out on over the years, not counting the money I had to pay every week for my portion of the benefits I never used. If you can offer good benefits, it is a nice perk for the employees, but don't include it as part of their salary increases. They will never be able to afford a nicer home or a newer car with that money.
Yes, employees' salary is a large percentage of the overhead. It is the cost of doing business. Without employees you can't run a business. If you have good workers, you will make that money back in productivity. I don't understand why that is such a big deal.
Sorry if this sounds like I'm taking it personally. I'm not really, but with being an employee up until last year, it does hit a bit of a nerve. I left my last job and career because of exactly that reason. Companies today, more than ever, seem to be taking advantage of employees. Raises are minimal and benefits are getting leaner. As an employee, people are lucky to be able to keep their head above water any more, let alone get farther ahead. The cost of living effects everyone, including company owners. But owners have the benefit of increasing sales, or lowering overhead, and presumably increasing cash flow into their pockets. The only choice an employee has is relying on a piddly raise every year or moving on to another company that will pay more.
From contributor J:
Who said that raises are not a good idea? I think that raises are good for employees but I do not think that they are the only way to motivate. I do think that you can get into trouble by giving a guy a raise every time he/she does more than is expected.
As for employees' houses and cars, I really don't care what they buy. They need to work for what they think is fair. What is fair is determined by what they can get working for someone else. What they can get working for someone else is determined by how badly someone else needs them and how hard it is to find someone that can do what they can do. That, of course, is determined by how much work there is out there. Simply put, supply and demand.
From your post I would guess that you haven't had too many people working for you and don't really see the big picture yet. Until you have a few guys ask for a raise the same week they call in sick to go skiing and leave work early to go to their Dad's birthday party in the middle of trying to get a job out, you will not really understand.
From contributor F:
Someone here said they prefer to increase benefits and not give raises. That, or I misread the post. I'm not saying raises should be given every time someone does something good. I think the once a year a review is a fine system. If someone goes above and beyond, an extra one thrown in there is also fine. Bonuses work well for that, though.
Actually, contributor J, I think you have a fine system. It's a little unusual, but since the employees are made aware of your philosophy from the beginning, there's no reason it shouldn't work. You also seem to throw in some nice perks for them.
As far as me having employees, no I haven't, yet. But I do understand the employer's point of view. It is no fun even as an employee having to work with slackers and people who take advantage of companies. I was always a hard worker and went beyond what was always expected of me. Up until the last few years of my career, I was rewarded for my efforts. A corporate merger ended all of that and we all just became a number. Not to mention I got a new boss who didn't care about anyone but himself. This was a case of a company taking advantage of the employees and squeezing every ounce of pulp out they could. I do realize not all companies are like this, big or small.
From contributor C:
If you are referring to my post about increasing benefits instead of raises, I don't prefer one method over the other. However, I would ask you to think about this for a moment. If an employee has to pay out of pocket for his/her health insurance, and you offer to pay for part or all of his health insurance from now on instead of a raise this year, both of you win. The employee has more disposable income (the money he saved by not paying insurance premiums). And the employer saves by not having to pay all of the associated taxes and insurance that would come along with an increase in the employee's pay.
Then, next year, if the employee is doing well, you can add another money saving perk, or increase his salary. Benefits such as family health insurance would surely be appreciated by an employee with a family and no other source of health insurance.
If someone has a different view on the technical aspects of this, please speak up. I have heard that this is perfectly legal and will work.
To the original questioner: Thank you for taking care of your guy. Not everyone has the personality to confront their boss about a pay raise. I use the word "confront" because, to some, asking the boss for a raise is a large confrontation in their opinion.
From contributor S:
Contributor C is right on about benefits. Remember that benefits like health insurance, life insurance, dental, eye care, company provided auto/truck, etc. are all benefits that the employee receives tax free... no income tax. True, they are also deductible to the employer, but then again, so is a pay raise and all of the associated taxes that go with it. I have always provided my fulltime employees with health insurance. In California that is now approximately $1000 a month for a family where the employee is about 45 years of age. For the $18.00/hr employee, that amounts to an additional $6.00 per hour for health insurance.
Contributor D, you seem to feel like you received no benefit from having the health care provided since you were lucky enough not to have used it. My bet is you'll change your tune soon enough now that you are self employed... Just wait till you have employees. I don't think any employee sees the other side of the fence till he has become an employer.
Am I a little cynical? You bet! But I have been an employer for 35 years. Good employees become employers and own their own shops; it's a natural progression. It makes one proud so see a guy move on to his own place... kind of a "look at him, I trained him." There is always plenty of work for everyone. Unfortunately, as the good guys move on, what's left in the barrel isn't always so nice.
Another misconception in the above post is that is isn't up to the owner to increase sales and volume to provide a better life for the employees. Believe it or not, we expand our business to benefit ourselves. More risk, more profits, hopefully. As an employee, you share none of the risks. You get paid even if there isn't a profit in the job. You get paid even when you screw up a project. Why should I stick my neck out farther so you can drive a better car or have a bigger house?
I once had a former union employee from the east coast come up to me and say "you've got a pretty good thing going here… You should be sharing more of it with your employees." Want to guess how many more days he worked for me?
I'm retired now, at 55. I thoroughly enjoyed my business. I worked with some great guys and gals for a number of years who are still like family. I paid them fair for the work they did, stayed at pay levels slightly ahead of the competing shops, and we had a liberal time off with pay policy. A couple of lousy employees is what made me decide to retire. One day I realized that I could afford to never work again and I said "that's it." Now my good former employees go to their shop to work, I go to my yacht, and the loser employees wait for their unemployment check to arrive.
If you feel an employee is doing more than you expected when you hired him, he deserves a raise, but don't pay anyone too much above the local going rate. Someone else who is desperate will always offer more and you can't keep up.
If you are making more money than you expected, you deserve the raise. Maybe your management skills are better than you thought.
From contributor F:
I do understand the benefit of health insurance. I was under the assumption the benefits were already offered. If someone doesn't have insurance and you offer that as an incentive, I'm sure it would be greatly appreciated. Especially to a worker with a family. An 18 year old, I doubt it. I worked for a guy a long time ago who didn't offer health benefits, therefore he gave each employee $100 extra per month to help cover insurance costs. I took it as a bonus and spent it. It would have been a waste of money for me to give it to an insurance company. I would never have used it. Even if I had, the money would have helped cover a doctor's visit or so.
Now, I am married and my wife is pregnant. Luckily, she carries the benefits. In about 6 months, I will have to make a decision to cover that expense myself or go back to work for someone that does. So, yes, I understand the expense. I will understand it even more in a few months.
I think each employee has to be on a case by case basis. You know who your good workers are and who aren't. If you feel you have an above average worker and feel he will stick around for a while, why not pay him above market? You want to keep him, don't you? No, I wouldn't make a habit of paying above market just to get workers from the competition. But I think special employees deserve better treatment. Yes, they will probably move on someday. That is to be expected. If he is treated well, you stand a better chance of keeping him around.
Contributor S, I'm sorry you had a bad string of employees. There are a lot of people like that. I know, I've had to work with them. It's not any fun for the coworker either. All I'm saying is, when you have a good worker and he stands out from the rest, treat him well. He will appreciate it and will give back in increased productivity, better quality or something.
Employees don't share the risk? Really? Yes, they will get paid regardless. But, I bet if you have a run of a few years of slow business, employee incentives will diminish. That is the risk they assume and have no control over. You can try to increase sales or whatever it takes to increase your profit, but without employees, it won't happen. If you have good employees and they know they will benefit from the increase in profit, I guarantee they will get more out of them than if you don't offer anything.
I know this from experience. Yes, as an employee. You get what you put into them. If you treat your employees like crap, crap is what you will get in return. If you shower them with benefits and incentives, you will get productivity in return. If you have slacker employees who don't care either way, then get rid of them. That is part of developing a team and everyone has to be a team player, including the employer.
I know this is getting long. But let me give you this real life example. The last few years of my career, we were lucky to get raises. The one time I did, it was a lousy 3%. This all with a sizeable increase in sales and profit each year. Bonuses had stopped. I continued to do a good job and bust my ass because that was in my nature. I couldn't do a poor job. On and on I pursued, hoping the ice would break and I would get rewarded for all of my efforts. This went on for 3 years. I was given quite a few multi-million dollar projects that were successful and everybody loved. Did I get anything for that? Sure, the same ole paycheck every week. Finally, I was put on a $20M project. I was hesitant to bust my ass on this one because I knew I would get nothing in return. But, I persevered and got the project done. As usual with me, way before the due date and met all of the customer's expectations.
I got absolutely nothing in return for doing a great job and helping the company make more money. I spoke with my boss about it and the fact I was being paid under the market. All I got were promises. I gave him time and nothing came about. Why? Because I was still there and doing my job. Why should he do anything more? I would stay there and work regardless. I had proven that already. Guess what? I walked into his office and handed him my resignation. He was shocked, to say the least, but tried to play it off like he didn't care.
To this day, I am glad I did that. I gave that company the best years of my career and they took advantage of it. The department hurt for quite a while due to the overload of projects I left behind. They hired someone to replace me, but to this day, he hasn't replaced me, if you know what I mean. The company has lost money by losing me and they don't even know it. Some do, but the people that matter don't.
There is nothing wrong with throwing money, or incentives of some sort, at your good employees. You will stand a better chance of keeping them than not. If he grows and wants to move on someday, so be it. He gave you his best while he was there and you both reaped the benefits. Life goes on.
From contributor L:
Have you ever hired a guy that said "well, for those wages I'll show up 3 days a week and do a half assed job"? Whatever happened to the idea of doing the job you hired on for, and doing it to the best of your abilities for the agreed upon wage? I knew as soon as I saw the expression "I busted my ass" where you were coming from. You gave the company the best years of your life… and they provided you a means of support... That's how it works.
From contributor F:
I agree. The company offers a salary, or hourly wage, and benefits for set job responsibilities. As long as the person is getting paid, he should be there for the agreed upon work hours and do as good of a job as he can. Nothing wrong with that. But you can't possibly expect that person to improve and go above and beyond what he was hired to do for the same pay. If you expect him to do more than he was originally hired for, he has to get paid more. Plain and simple. Otherwise, you are taking advantage of them. Doing more than is required for the same pay is the same as working fewer hours than agreed upon. It's called compensation for a reason. And it's a two-way street.
This has gotten blown way out of proportion. There are extreme cases like mine as an employee and then there are extremes as an employer that obviously some of you experience. It isn't like that at every company and I know that most of you here as company owners do take care of your employees. That is what started this whole thread and obviously the guy was given a raise for his efforts. That's how it should be.
From contributor Z:
I am a sawmill employer and I also do not give raises until they are asked for. But when they are asked for, I judge each case on its merit and will give a raise if it is deserved. If it is not, then they will be told why.
It would be different if I had only one employee, as the person posting the question has. Then I would give them the raise without him asking. Because without a core of good employees, your business will never do well.
But I also think training is a good way to hang on to staff. I train staff on a regular basis. This builds good communication, as you are working with staff one on one. This also keeps existing staff on their toes as they know they are not indispensable.
Nobody ever comes to me demanding a pay rise, as this shows a lack of respect and they will be warned that this is not acceptable. You must remember who the boss is.
I would like to point out that there is a very good employer-employee relationship, and there is also a good employee-employee relationship, which is arguably more important in terms of staff retention. Because just as I do not tolerate a lack of respect towards myself, I do not tolerate it among the employees and I will remove any troublemakers no matter how good they are at their job.
I work in the sawmill buildings as often as I can, as it is one of the main motivation boosters. They will work hard if you are working hard with them. They do not understand that you may also be working hard in the office chasing up bills or phoning the bank.
My last point is this: count how many employees you would have on Monday if you had to say this on a Friday: "Things are tight just now as the company hasn't been paid, but I can assure you that this week's paycheck will be paid next week along with next week's paycheck."
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