What is the purpose of a pay rise?
A pay rise is an increase in an employee’s salary or hourly wage, typically given to reward performance, acknowledge an increase in an employee’s contributions or align compensation with market rates. It sometimes reflects company growth or inflation adjustments. Beyond its financial value, a pay rise is a powerful way to boost morale, retain talent and reinforce an employee’s importance within the organisation.
Why give pay rises?
On the surface, increasing pay might seem like a costly move that eats into your overheads. However, regular pay rises are a strategic investment in your workforce, helping to boost job satisfaction, attract top talent and retain valued team members. Here’s why pay rises matter:
To improve employee satisfaction
Pay rises show employees that their time, skills and contributions are valued. A well-communicated increase in salary can enhance morale and motivate employees to continue performing at their best. Discussing pay also provides an opportunity to recognise their achievements and highlight how their work aligns with the company’s goals, fostering a sense of pride and satisfaction.
To help retain top talent
Employees who feel underpaid or undervalued are more likely to seek opportunities elsewhere, especially when stressors like increasing bills or personal expenses come into play. Offering regular pay rises demonstrates your commitment to their well-being and career growth, reducing the risk of turnover and retaining your best talent.
To attract new talent
In a competitive market, offering competitive wages is essential for attracting top talent. Regular pay reviews help your company stand out to potential candidates, showcasing your commitment to fair compensation and your willingness to invest in your employees’ futures.
To foster positive employer-employee relationships
Discussing pay openly and proactively builds trust between employers and employees. It provides an opportunity to address concerns, explain how salaries are determined (e.g., based on market rates, client portfolios or working hours) and show transparency in decision-making. This trust strengthens workplace relationships and reduces the concerns employees may feel about their salaries.
To stay competitive in the market
Regularly reviewing and increasing wages allows your company to stay competitive with other businesses in your industry. Evaluating factors such as what competitors pay for similar roles, the value of employees’ contributions and their workload ensures that you’re aligning salaries with market expectations and rewarding hard work fairly.
Related: A guide to setting a financial wellbeing policy
When to give a pay rise
Determining the right time to offer a pay rise is important for aligning compensation with performance and maintaining your employees’ motivation.
Many companies include scheduled pay rises in employee contracts or initial employment agreements so that employees know when to expect them from the outset. Others may base increases on the outcomes of performance evaluations, exceptional contributions or company growth milestones. Whichever approach you take, it’s important to ensure that wage adjustments feel fair and timely.
In addition to standard reviews, consider individual pay adjustments for employees who consistently contribute to the company’s success. For example, you might reward employees who:
- Maintain valuable client relationships: employees who represent your company to high-value clients often play a key role in driving business and maintaining trust.
- Drive revenue growth: those who directly contribute to the financial success of their department or the company as a whole may deserve recognition for their impact.
- Take on additional responsibilities: reward employees who have improved in their roles, demonstrating initiative and strong engagement with their department.
- Show strong leadership: recognise individuals who inspire and guide their colleagues, fostering teamwork and collaboration within the workplace.
Related: A guide to financial benefits for employees: paid time off, retirement and supplemental insurance
How to communicate a pay rise with an employee
Communicating a pay rise is an important moment that, when handled well, can strengthen trust and morale. However, miscommunication during this process can lead to unnecessary conflicts or even legal liabilities. To ensure the conversation is effective and positive, follow our step-by-step guide with key tips to communicating a pay rise.
- Choose the right setting
Discuss pay rises privately and in person whenever possible. This approach shows respect for the employee and allows for a more open and honest dialogue. If needed, consider including a representative from human resources or accounting to address specific questions. - Provide context
Always explain the reason for the pay increase. It may be to reflect cost-of-living adjustments, reward exceptional performance or acknowledge increased responsibilities, but expressing clearly to the employee why they are receiving a rise helps them understand and appreciate the decision. - Recognise specific contributions
Highlight the individual achievements or contributions that led to the pay increase. Acknowledging their efforts shows that you value their hard work and makes the conversation more personal and meaningful. - State the rise in monetary terms
When discussing the pay rise, focus on the currency amount rather than a percentage. For example, “Your salary will increase by £2,000 per year,” is more impactful than saying, “You’re getting a 2% increase.” Clearly outline the new annual or hourly amount. - Frame cost-of-living increases positively
If the pay rise is primarily a cost-of-living adjustment, consider presenting it as part of your company’s commitment to fair and competitive compensation. This can help boost employee confidence and morale. - Avoid overexplaining
Refrain from offering reasons why the pay rise isn’t higher unless the employee directly raises concerns. Overexplaining may inadvertently reduce the positive impact of the increase. - Express gratitude
Take the opportunity to thank the employee for their contributions to the company. A simple expression of appreciation can encourage them to continue performing at their best. - Confirm implementation
After the conversation, follow up with your HR or payroll department to ensure the pay rise has been processed correctly and on time.
Who should communicate the pay rise?
Who communicates a pay rise often depends on your company’s payroll and management policies. Typically, the employee’s direct manager or department head is best suited to deliver the news, as they have the closest working relationship with the individual. In some cases, it may be helpful to involve a representative from human resources to address any questions about deductions, withholdings or payment logistics. Ensuring clear and consistent communication reinforces trust and professionalism during the process.
Beyond the numbers, effectively communicating a pay rise is an opportunity to strengthen trust, show appreciation, boost your employer brand and reinforce your commitment to your employees’ growth. By delivering the news with clarity and professionalism, you can create a positive experience that fosters loyalty and motivation, driving your organisation to becoming a workplace of choice.
FAQs
When is the best time to review employee salaries?
The best time to review salaries depends on your organisation’s policies, but many companies schedule annual reviews. Alternatively, salary reviews can be tied to performance evaluations or company growth. Timely reviews demonstrate fairness and ensure compensation aligns with market rates and employee contributions.
Should pay rise discussions include long-term career planning?
Yes, discussing long-term career opportunities during a pay rise conversation can reinforce your commitment to the employee’s growth. Highlighting future development paths or potential promotions alongside a salary increase can motivate employees and strengthen loyalty.
How do you handle an employee’s disappointment with a pay rise?
If an employee is dissatisfied, listen to their concerns and explain in simple language how the pay rise was determined. Share insights on factors like budget limitations or market comparisons and where appropriate, discuss future opportunities for salary adjustments based on performance or company growth.
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