Raises Are Usually Tied to Increased Worker Productivity
Even though worker productivity has increased 60 percent in the U.S. between 1990 and 2012, pay at small businesses has largely remained flat for the past 25 years, according to the website Small Business Trends.
Where Did The Gains From That Worker Productivity Go?
To fund worker benefits and pensions, according to Small Business Trends. While output per worker rose 60 percent, the average hourly wage at businesses with up to 99 employees rose only 0.9 percent. Business owners increased their spending on pensions and profit sharing from 1.3 percent of labor costs in 1980 to 3.8 percent in 2011.
How to Give Raises
One of the obvious reasons to give raises is to help relieve stress at work, specifically financial stress. Money worries can lead to lower productivity and workers quitting or looking for new jobs.
Employers unsure if they can afford to give raises have a few options. Here are some considerations for deciding when to give a raise as a small business owner:
Cut Costs Elsewhere:
Ask employees to brainstorm ways to streamline business processes, with the caveat that any savings will go into their pockets as raises.
Focus on High Performers:
You may not care if employees who aren’t performing too well are looking for other jobs, but it can worthwhile to try to keep top performers around by giving them raises. It can be easier to find some money for raises for a few high performers than to do it for everyone.
Adjust Benefits:
Eliminating some employee benefits could offer savings to increase salaries. For example, you don’t have to offer health insurance if you have 50 or fewer full-time employees, negating the need for it and giving you a chance to put that savings toward raises. The extra money could help workers afford insurance on their own.
Consolidate Jobs:
If some duties can be consolidated without laying anyone off, the savings can go toward raises. Do this through attrition, distributing their duties and salary among employees.
Seek Pay Equity Within Your Business:
To prevent employees from quitting, make sure your pay scale is in line with what other related businesses are paying in your area. This will allow you to create a base wage for different jobs. From there, you can offer raises based on other factors.
Keep Up With Inflation:
If people who have just joined the company are making the same amount as workers who have been there for years, it can lead to morale problems for senior employees. You may want to give raises just so your workers’ pay is keeping pace with inflation.
However, if you believe that raises should be tied to an employee’s contribution to a successful business, you may not want to simply give raises to workers who have been there for a long time. You can link pay to performance.
Performance-Linked Raises:
In an annual or six-month review, discuss employee performance with each worker and give raises to those who meet the goals set for them.
However you decide to give raises to employees, consider offering them direct deposit so that they can get their paycheck easier and faster than they would through other methods. Rockland Trust offers workplace interest checking accounts to employees of participating Rockland Trust businesses.å
