Everyone knows that if you don’t give raises, eventually your people will leave. That part isn’t complicated, but how frequently and when should you give a raise, and how much should it be is.
The most critical parts of giving a raise are timing and delivery. Raises should be appropriately spaced apart for individuals, to deliver the maximum morale boost possible (likewise promotions, bonuses, and stock grants should be spaced out between raises, too). This doesn’t mean that you are obligated to wait to give a well-deserved raise, but most good managers target raises every 12–18 months. Where possible, raises should be aligned with the achievement of goals to reinforce to the employee that the company values their work. However, if your company does all raises concurrently (a suboptimal delivery method), you may be stuck doing it their way. In this case your job as a manager is a bit harder, but you should attempt to architect employee goals to be completed in order to coincide with the time that raises are given out.
Raises should be meaningful to the employee, so they feel that they earned it, not that they just received it because everyone else got one too. People work for money, but they also work for the satisfaction of creating something valuable and for the appreciation of others for their efforts. Tie raises to their accomplishments both recent and more historical. The reasons for the raise need to resonate with them and the significance to the company needs to be clearly enunciated. Also, when a raise is given out it is important to communicate that the raise is not just for the work they have done, but also the expectation of the work they will do.
Raise time is also an excellent time to establish new goals and to set their expectations as to what the achievement of their new goals will mean for them. Not all goals equate to money, but cumulatively they should translate to tangible results for them — raises, bonuses, new skills, increased responsibility, non-monetary rewards, appreciation, and promotions.
With regards to raise amounts, there will always be three main factors: budget, performance, and morale. As a manager, you may need to fight for budget, but you also need to be mindful of the business realities. While all managers are constrained by budget, team morale and consequently performance are more malleable.
No raise should ever be less than the employee is expecting. This doesn’t translate to every employee receiving their dream raise. It does mean that you set expectations early (way before raise delivery) and know what they are thinking. Being surprised by an employee’s reaction during a raise conversation is a sign of poor communication and can reduce an employee’s trust in a manager. It also means that they may attempt to negotiate with you, or that they will be at increased risk of leaving the company.
For insight into improving your distribution and delivery of raises please consult this table: