How to Communicate a Pay Raise

Best Practices and What Not to Do When You Communicate About a Pay Raise

Business people in a meeting to communicate and discuss the employee's pay raise.
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When you think about communicating a pay raise to an employee, you likely think about the meeting as a win-win situation. And, this is the best case scenario. But, even announcing a salary increase is fraught with details that can go wrong if you handle the pay rise message incorrectly.

In one survey employers had difficulty with pay communication regularly as high performing employees feel underpaid. Employees believe that pay decisions are based on bad information and they wrongly believe that they are paid below market.

As the survey noted, "How much to communicate about pay is a continual debate, one for which there is not a clear answer. Those for open communication contend that unless employees understand the pay system and how their pay is determined, it will not hit its mark of supporting and enabling the achievement of strategic business objectives.

"What’s more, even proponents of reward program transparency point out that a level of employee privacy must be preserved and that complete openness, where employees know how much their co-workers are paid, can foster jealousy and performance problems."

According to the study, only 13 percent of study respondents said that most to all of their employees understood how variable pay, salary, and benefits work together to compensate employees. 30 percent of respondents said that most or all employees understood why raises were distributed the way they were, but 45 percent said that only some or few employees understood.

Given the level of understanding among employees, unless your organization has done a crackerjack communication job, most employees need education about their compensation. For them to fully understand any pay raise they might receive, the communication must more broadly educate them about the company’s compensation and compensation philosophy.

For example, if your company's philosophy is to give an across the board pay raise annually at the average national pay increase across all companies, employees need to understand this rationale. They need to know in advance that they are not likely to receive more money. This will minimize disappointment when you communicate their actual pay raise.

The Role of Managers in Communicating a Raise

While managers are not solely responsible for communicating about compensation with employees, managers play a significant role. (Human Resources staff, total rewards statements, meetings with benefits company representatives, and pay raise letters also play a role in the employee's understanding and acceptance of the total compensation package.)

To communicate effectively with employees, managers must:

  • Understand their role and the value that they add when they communicate a pay raise.
  • Understand the company’s pay philosophy, for example, merit increases vs. the across-the-board cost of living increases, variable pay vs. base salary, and so forth.
  • Communicate effectively about the pay raise so that the employee feels rewarded and recognized by the increase.

What Not to Do When Communicating a Pay Raise

When communicating with an employee about a pay raise, these are the actions and statements you need to avoid.

  • Fail to give the employee the context for the increase. For example, our company’s philosophy is to award pay increases based on merit and contribution.
  • Tell the employee the percentage of increase. In an environment nationally in which pay increases average 2.5–3.5 percent for employees who are performing, a percentage will not serve as a motivator. (Employees will generally do the math following the meeting anyway.)
  • Do not compare the employee’s increase to that of any other employees.
  • Do not compare the employee’s performance to the performance of any other employee.
  • Fail to tell the employee why they are receiving the increase.
  • Place the emphasis on the discussion on why the raise isn’t larger.

Best Practices in Communicating a Pay Raise

Schedule a private meeting with the employee to discuss their pay. During the meeting, follow these best practices described.

  • Do provide the context for the employee’s pay raise. For example, our company’s philosophy is to award pay increases based on merit and contribution. This rise in your pay is to show appreciation for your contributions this year.
  • Tell the employee why they are receiving a pay increase. Be as specific as you can be about the contributions they made during the year.
  • Give the employee the amount in dollars of the increase. In conjunction with your Human Resources staff, tell the employee the total amount of their new annual salary.
  • Do not pursue why the raise is not more substantial unless the employee brings it up during the meeting.
  • Express faith and confidence that the employee will continue to contribute and that you will value all of their future contributions.
  • Thank the employee for their work and commitment to your company.
  • Follow up in conjunction with HR on a written document for the employee’s file and that you mail to the employee’s home address.

What Can Challenge You When You Communicate a Pay Raise?

These are the most common situations you will encounter.

  • The employee disagrees with the amount of the pay raise. Or, the employee is disappointed by the amount of the increase. The employee expected more.
  • The employee disagrees with your assessment of why he or she earned the amount of the raise received.
  • The employee wants to know how his pay raise compares to those of other employees.
  • The employee wants to know the range of the percentages of increase that were available in the company pay plan.
  • The employee wants to know how she can earn a larger increase next time raises are available. As the manager, prepare a very specific response to this common question. Come prepared to the meeting with goals and objectives and recommended actions that will earn the employee the largest available raise.
  • The employee wants to know how much she will receive in bonus pay or profit sharing when you may not yet know the answer to how much or even if these variable pays will be available.
  • Although this is the subject of a separate article, what if the employee did not receive a pay raise.

Regard these tips and best practices to effectively communicate a pay raise to an employee. Use the following resources for fundamental approaches to discussing issues in difficult conversations.

More About Difficult Employee Conversations