How Pay Raises Lower Employee Morale
How? Let's say that you have not given any raises over the past year and now you choose to give raises.
There are two basic ways to give raises: (1) You give them to a few of your most important employees; or (2) You give them to all your employees.
1. Raises for a select few:
When you sit down with your most important employees to tell them they are getting a raise, you may be surprised when the employees are not as excited as you thought they would be.
Employees may think that any raises will be a catch-up for not receiving a raise the previous year. The way in which you bring up the subject of raises and how you let your employees know of their importance to your business is vital. It is also critical to give them the biggest raise possible.
Even if you manage to handle the conversation correctly and the employee leaves the discussion happy, you are still not out of the woods.
Though you probably told the employee to keep their raise a secret, the information will still get out. Count on it. This is where most managers get blindsided. They are not prepared for the backlash.
Be ready to sit down with any employee who brings up the subject. Focus only on the employee to whom you are speaking and on how he can improve his performance to get a raise in the future.
Never let an employee compare himself to another employee, which is the biggest trap ever.
Depending on your company culture, it may even be a better strategy to address your entire team prior to giving select raises and acknowledge the entire situation. While the employees who are not getting raises won't be happier, it will take the pressure off of your best employees and reduce the gossip around the subject.
2. Raises for all your employees:
The second way is to give raises to everyone. While this way appears to be easiest, it sometimes causes the biggest damage to employee morale.
Businesses often use the "peanut butter spread" method where everyone gets the same raise regardless of his performance or importance to the business. Your best performers absolutely hate this technique. They don't want to see their hard work ignored while their lazy coworkers get the same reward as them.
Again, managers should assume that regardless of any policies or warnings they give, everyone will know everyone else's raise amount.
In this economy, how you handle your raises can drastically affect employee morale and performance but more importantly, it could cause you to lose your best employees. Make sure to make your decisions consistent with your company culture.