By Dick Grote
In many smaller organizations there is no formal compensation policy. There may not even be an HR professional available to consult on merit increases and other pay issues.
In these companies, not only is the tragedy of the commons phenomenon more likely to arise, but managers are also more likely to encounter direct requests from their staff members for a raise since there is no specific policy regarding compensation. Without a policy, people assume that if they want a raise, the only way to get one is to ask for it.
Obviously, the best solution to this problem is to develop some kind of compensation policy so that matters of compensation are not handled in a one-off, spur-of-the-moment fashion.
But the manager who gets the request may not be in a position to determine what the company’s policy will be, particularly if the company is a small owner-operated firm and that manager isn’t the owner. Having to say, “You’ll have to talk to Mr. Jones about that” lets everyone know that the manager has no power or authority in the really important areas.
Raise-requesters usually offer a combination of reasons why they deserve a pay increase: they’ve done an outstanding job (this reason is almost always offered regardless of whether it’s true), the scope of the job has significantly widened, they’re underpaid compared with peers in the office or with the going rate for the job at other organizations, the cost of living has increased since the last salary adjustment, and the universal I-need-more-money motive.
Value of the role vs. value as individuals
If the manager getting the raise request is the decision maker (the owner of the business, for example, or the managing partner in a small professional firm), the best approach is to thank the person for bringing the matter to his attention together with a promise to get back with an answer by a specific date. From there, he should talk to other people in leadership positions in the company about the whole issue of compensation to see whether the request is a unique event or the tip of an iceberg of compensation grumbles.
It’s important to keep in mind the difference between the value of the role that employees perform and their value as individuals. The two are not the same.
Every job is worth a given amount and that value is determined by the market, not by the quality of the individual’s performance or their need for a greater income. It may be that the value of a particular job has simply been reached, so the refusal to grant a salary increase is not a reflection on the person’s worth as an individual but on the value of the job to the company, no matter how well that job may be performed.
If your review of the individual’s salary-change request indicates that a pay increase is appropriate (the person is in fact underpaid compared with others in the company who are doing the same job, or it would be difficult for you to replace the individual at anywhere near the salary the raise-requester is currently being paid), don’t grant it immediately. If you agree to a salary increase directly following its request, the word will go forth that all the people in this organization are underpaid.
The precedent will be set that the way to get a salary increase is simply to ask for it. This will cause you to be held hostage to all the other requests for more money that will immediately follow.
Are they adding more value to the organization?
Instead, initiate a second conversation. Explain to the raise requester that the amount of money paid an individual is a function of two things: the value of the job itself (the amount it will cost to hire a replacement of similar quality) and the quality of the person’s job performance.
Ask the individual to take the responsibility for examining both how her performance can be improved and how the job can be made more valuable to the organization. What additional duties might she take on? How much extra responsibility is she willing to assume? How much extra effort is she willing to put forth? When these issues have been successfully settled, you can grant the pay increase knowing that both of you have gained from the transaction.
Finally, it’s best to separate the discussion about the performance appraisal and the salary change or merit increase by at least a week or more.
Yes, there’s an additional administrative burden in having to conduct two discussions rather than handling both issues in the same conversation. But each issue is so important that it’s beneficial not to mix the two. And if your company’s policies dictate that compensation changes must be discussed during the performance appraisal discussion, tell the employee about the compensation change at the start of the meeting, not the end.
Putting it off to the end is terribly distracting to the individual during the discussion of his performance, when his internal voice keeps shouting, “How much? How much? How much?”
Excerpted from How To Be Good At Performance Appraisals: Simple, Effective, Done Rightby Dick Grote. Reprinted by permission of Harvard Business Review Press. Copyright 2011 Dick Grote. All rights reserved.