5 Factors that Determine a “Fair” Raise in 2014

As 2014 quickly approaches, your employees likely have dreams of holiday breaks, the occasional (but elusive) inclement weather day and news of a pay raise. Depending on your organization, you may offer annual raises in January or employees may receive them at their annual performance reviews. Either way, a new year is a sign of new things to come and raises will likely be at the forefront of your employees’ minds.

This also makes the new year a difficult time for HR professionals and managers as decisions must be made. One of the toughest decisions is not necessarily determining how much of a raise employees should receive but instead how to determine the amount. Most organizations have a general determination system but may not realize the biggest contributing factors for determining pay raises. To help with determining pay raises, take these five factors into consideration:

  1. Performance
    Performance-based pay raises have long been the tried and true method of determining fair raises in the workplace. Not only does it allow for quantifiable justification of a salary increase but also provides motivation for employees to perform. If you’re going to use performance as a measure of deciding raises, there are a few things to keep in mind. Performance-based pay raises should be fair. If John is given a raise in an environment where performance-based pay raises are standard and Jackie isn’t, despite the fact that they have the same amount of sales, eyebrows will raise. Additionally, your goals or benchmarks should be reasonable and attainable.
  2. Market value
    The market value factor can either be a positive selling point or a point of avoidance depending on where your organization falls on the spectrum of market value vs. actual salary. However it’s going to have to be considered eventually. When an employee requests a raise, it’s likely something they’ve researched and considered too. If you don’t currently compensate your employees in line with the industry, region, position and experience standard, they definitely have a leg to stand on when it comes to requesting a raise (though it still may not be possible – more on that below). However, if you are compensating your employees fairly, then that may be a reason to deny a raise request. Not sure? Take a look here.
  3. Your organization
    Regardless of market value, the single most influential factor is going to be your organization’s success, standards and regulations. It’s a sad fact that sometimes your company cannot afford to offer raises or must deny requests because of pre-determined ranges. On the other hand, many companies use periods of success to provide raises. When an employee requests a raise, this will be a significant factor in determining what that raise is or if one can be provided.
  4. Responsibilities and expectations
    As you’re preparing to make decisions about raises this year, take some time to evaluate your employees not only on performance but also on the amount of responsibilities they have either been given or have taken on themselves and what kind of expectations you have for them. These factors are both very telling of an employee’s work ethic, ability to be a team player and their future success.
  5. The future
    Regardless of what your employee’s position or performance level is at this very moment, they have a future you should consider. Many times, a raise is essentially an investment in the employee’s, and therefore the company’s, future success. Some future considerations that play into determining what kind of raise they should receive include what their responsibilities will be like in the next year or so, the anticipated workload they’ll be taking on, whether or not they’ll be promoted and whether or not you’d like them to stay with the company for a significant amount of time.

When you determine pay raises, what factors do you consider? Let us know in the comments below.

For more information about implementing a pay-for-performance model in your organization, including a checklist to help you get executive buy-in, take a look at PayScale’s complete guide on the subject

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mike j

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