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How do you reject requests for a pay rise?

Can not give an employee a pay rise? What can you do?
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How do you reject requests for a pay rise?

How do you reject requests for a pay rise?

9 March 2020

What can you do if an employee asks for a pay rise and you cannot give one, for reasons of either budget or merit? Most organisations have a formal pay review system in place, eg annual reviews, but occasionally an employee may ask for a pay rise out of the blue.

It won’t be sufficient to say: “no, wait for your annual review”, as the employee most likely knows how the formal system works. Even if the request has no merit, you need to take it seriously, and it needs to be obvious to the employee that you took it seriously.

What to do when you receive a request

The first step is to ascertain why an employee has suddenly made a request:
  • He/she has recently gained an extra qualification
  • He/she has recently successfully completed an important work assignment
  • He/she is considering resigning, and may have already been offered another job, but would prefer to stay if a better deal can be achieved
  • He/she may have some outside-work commitments causing financial difficulty, and is looking for a solution.
  • He/she may simply be an opportunist who perceives the organisation to be vulnerable at present, eg because other key employees have recently resigned, or a major work project is about to commence.

Knowing the reason(s) for requesting a pay rise will determine how best to respond to it. However, there are some guidelines that should apply to handling all requests.
  • Ask the employee to set out in detail the reason(s) for requesting a pay rise. Listen carefully to what he/she says.
  • Review the employee’s file and recent job history and job performance. How does his/her current pay rate compare to other employees in equivalent jobs, and to market rates for equivalent positions? What, if anything, has changed recently? Job performance factors that may support granting an increase include:
    • consistently meeting deadlines and being highly dependable
    • Taking on extra responsibilities or working hours, either voluntarily or because the job demands have expanded
    • Going above and beyond normal job requirements
    • Adding extra value through innovation, lateral thinking, improving work processes, new ideas, etc
    • Always being keen to learn and improve
    • Having a positive attitude that encourages and motivates co-workers
  • Market rates and other comparative data help to provide an objective basis for whatever decision you make. Many employees are unaware of how their pay rate compares, for example they may not realise that they are already paid an above-average rate.
  • Schedule a private meeting with the employee with no potential distractions.
  • If you have decided to say no to a pay rise, consider other possible options you can offer the employee, such as more flexible working arrangements, cost savings via partial working at home, extra fringe benefits, loans to employees in financial difficulty, etc. But these need to be tailored to the preferences of each individual employee to be effective, so don’t make a firm decision about any of them until you have discussed them with the employee.
  • Try to evaluate the potential consequences of saying no. For example, can you afford to lose a good employee who wants to stay but has received a better offer elsewhere? Will the issue resurface in a few months’ time? What will the impact be if you decide to give in?
  • At the meeting, explain clearly why you cannot grant a pay rise. Mention all relevant factors, eg budget, level of job performance, equity with other employees, etc. Explain in detail how pay rates are calculated within the organisation and when the next review of all pay rates is scheduled. This will make it easier to understand what an employee needs to achieve to earn a pay rise – and hopefully reinforce the message that improved performance will be rewarded.
  • Allow the employee to ask questions. The process must be perceived as fair and transparent.
  • If there are alternatives to a pay rise you are willing to offer (as per the list above), discuss them in detail with the employee.
  • Keep a record of the discussion with the employee, in case it is challenged (eg a claim of discrimination) or he/she makes another request later on.

Recommended practice is to have a process already in place for handling unexpected requests. This helps to ensure they are handled professionally and no relevant factors are overlooked.

If you say yes...

If you agree to a pay rise, explain in detail your basis for granting it. Specifically mention any extra contribution the employee has made. Notify him/her in writing of the decision, setting out the new pay rate and the increase amount in both dollar and percentage terms.

In summary

Telling an employee he/she cannot have a pay rise is a difficult and potentially scary experience for managers. You need to be well prepared via thorough prior research, able to objectively justify the decision, and handle the process tactfully and respectfully.

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