Every employee works (hopefully), and expects a paycheck at the end of the week. Every so often (Year or two), they would like a raise; at the very least the rate of inflation. These are not unreasonable concepts, are they?
I have had the privilege, and curse, of managing many employees. Everyone wants a raise, everyone talks to each other about raises they got or think they deserve, and everyone is envious of the ones that got one. It can be a great boost to production, and it can cause revolt. Which result you get, requires a great care to detail.
I once had a conversation with a potential sales employee on their worth. I told her $12/hour plus 5% commission was fair since she was full of youth and inexperience, had no track record, and would require a lot of supervision. Yet, the commission she would earn would still reward a job well done (at the time minimum wage was $8.50). She countered with $18/hour and no commission. She claimed this was more suitable since she had much experience elsewhere, and planned to bring in several big contracts. I also countered, with $0/hour and 15% commission, stating that since she was so confident of her prowess, it would be unfair for the reward to not be in-line with the benefits the company would receive from her work. She didn’t take the post…
How do you decide what to salary and raise to give your employees? Do you give the same to everyone, and will that make them all happy or some unsatisfied, or outright angry? I found that without an educational seminar on how business works, someone will undoubtedly be unhappy. Unfortunately, who wants to sit through a seminar on why you’re not getting more money.
Aside from an employee’s salary, an employee costs the following:
- Government taxes & benefits
- Health insurance and retirement plans, etc.
- A desk, with a computer, a chair perhaps, and a phone; the office must be heated and the lights must turn on.
I used to provide coffee until one employee complained of the brand I was buying. It was a cost within a cost, as purchased the coffee, and then employees took more breaks to drink it, thus being less productive – but now I’m going off topic (see future post on Coffee in the Office).
For myself, starting salary is based on two things: 1 – What does the market demand for the post, and 2 – What can I “re-sell” the employee for (billable hour rates)? Applying raises should raise similar questions. If I want to keep an employee, matching inflation is a must.
I need to decide, what is that employee worth to me? A successful business needs qualified employees. They are more productive than a new hire, they are known to clients and provide a sense of stability, and hopefully they require little supervision (thus you can concentrate on other aspects of your business). Furthermore, there is a cost to replacing an employee. You must go through the interview process, then the replacement must be trained & supervised closely.
I give Data Entry staff all the same rate (the sad truth is, they’re easily replaceable), while more qualified staff receives what I feel each is worth. Staff will talk, they always do, and someone will be upset, someone always is. I back up my decisions with numbers. At some point we end up in my office discussing how “employee A” brought in more money than “employee B”. Yes it comes down to money, isn’t that why you’re in my office?
Lastly, but mostly importantly, something no employee considers (and some business owners forget): has the company become more profitable in the past year? In order to give employees more money, the money has to exist in the coffers. Sadly, money does not fall from the sky. If it did, I would close up shop, sit on my lawn… and wait.
Moral of the Story: It’s a business, and it needs to be profitable to continue to exist. (Only governments can continually spend more than they take in)