The Benefits of Giving Your Staff a Raise

giving your employees a raise

Are you trying to keep your key employees happy by offering them perks like work-at-home days, cross-training and flexible hours? That’s great and I encourage you to keep offering those extras, but a new study shows that they may not be enough to retain workers.

What matters more than feel-good, work-life-balance extras?

You probably don’t want to hear this, but – it’s money.

Why You Should Consider Giving Your Employees a Raise

Dr. Greg Willard, a Harvard University professor and executive at Cangrade, a job candidate screening company, reviewed studies of the causes of workplace stress and found some important insights.

First, Willard says, the majority of people are stressed at work, with studies by the American Psychological Association consistently showing 70 to 75 percent of employees reporting workplace stress.

What’s the number-one cause of workplace stress?

Low salary – which is closely related to the second leading cause, which is financial worries. Clearly, making more money would go a long way toward relieving most employees’ stress.

If you think you can’t afford to pay employees more, consider this: Employee stress is already costing you. The APA studies found that 33 percent of workers lost as much as 10 percent of their productivity due to stress, while 20 percent lost up to 25 percent. And nearly 60 percent of employees have looked for new jobs or quit their current jobs due to stress.

If you’re on a tight budget, like most small businesses are, you may decide that bonuses or other one-time incentives are the best way you can relieve employee stress while still keeping your bottom line healthy.

Unfortunately, Willard says, research shows paying a higher salary upfront is more effective than bonuses or incentives that the employee may or may not receive. When employees feel their financial needs are met, they feel more secure in their jobs, more likely to be open about their opinions as to changes that can help the company, and more engaged and enthusiastic at work.

“That’s great” you say. “But I just can’t afford to pay higher salaries.” Below are some options to consider:

Look for Other Places to Cut Costs to Free Up Money for Higher Salaries

Get your employees together and brainstorm ways you could streamline processes or eliminate waste.

If they know that the savings will go into their pockets, they’re likely to come up with quite a few ideas they have not mentioned to you before.

Focus on High Performers and Key Employees

Frankly, you may have some employees on staff that you don’t care if they look for another job. Focus your efforts and salary increases on the high performers you want to retain and the key employees you couldn’t do without.

It’s easier to squeeze out a small amount to increase one or two people’s salaries than to do it for the whole team.

Adjust Benefits

Perhaps it’s more cost-effective and motivationally effective to eliminate some of the employee benefits you currently offer and use the savings to give your staff salary increases.

For instance, if you have 50 or fewer full-time employees, under Obamacare you don’t have to offer health insurance. Depending on where you live and your employees’ age and health status, if you give them raises, they may be able to afford insurance more cheaply on their own and still enjoy a higher salary.

Talk to your benefits provider and accountant to figure out the cost-benefit here.

Job Consolidation

In some cases, you might want to consider consolidating job duties. While some might think this means laying off employees, that’s not necessarily the case.

If you do lay people off, make sure you give your remaining workers raises and that they understand the reasons behind the change. Be mindful of relationships among employees. No one’s going to be happy about a raise if it means their closest work buddy lost his or her job. And no one’s going to be engaged if they’re worried about the next round of layoffs.

Attrition can be a far better recourse, when someone quits or retires, distribute his or her duties and salary among your  employees.

Happy Employee Photo via Shutterstock


Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.

7 Reactions
  1. It’s a tough balance between offering non-compensation “perks” vs. increased wages/salaries. Either way you’ve got to make sure what you’re offering translates into the employee feeling valued. No two people are the same, so you’ll need to consider that.

    • I have encountered a company that offered both. One is a payment plan that has a higher pay with fewer benefits while the other plan has higher benefits with lower pay. It seems like the ones with benefits is better as they also get allowances.

  2. As the current market scenario is against is salary hike, due to continued recession problem. Which is taking its toll on salary of employees, if any company is unable to hike employees salary, they should think of offering some perks or incentive from time to time to motivate each to stick to the company for long.

  3. Sean @ Small Business Billionaire

    I am currently increasing my employees wages from Minimum wage to a “Living” wage. It’s a work in progress but I have seen increased productivity and positivity among the staff. I definitely feel like I’m on the right track and hopefully can continue to increase wages as sales increase.

  4. “Focus your efforts and salary increases on the high performers you want to retain and the key employees you couldn’t do without.”

    Job costing can help you identify your most profitable employees. Knowing this helps you to create incentives to keep your employees to stay on board with your company, and to also restructure or remove employees who are underperforming.