Every business owner wants to create a great place to work for their employees, but being a great place to work means more than just pizza parties and casual Fridays. Offering employees the right compensation also plays a major role.
In a recent survey of hourly workers, we found that roughly one-third of employees are dissatisfied with their current compensation and nearly 27% of those workers said they have never gotten a raise!
Most businesses have countless expenses and operate on tight budgets. Knowing how much to pay employees and when to give them raises can be challenging. However, it’s important to show employees they are valued and doing so can actually help your business grow.
Let’s look at some reasons you might consider giving your employees a raise and how increasing compensation can impact your business for the better.
1. Improved employee retention
In the last couple of years, workers have been leaving their jobs in droves. Employee retention is a huge concern for many businesses and for good reason! The average cost of replacing one employee can range from one-half to two times that employee’s annual salary.
Offering raises is something you can do to improve employee retention and the data backs this up. As part of our recent Compensation Expectations Report, we found that 55% of employees are looking for a new opportunity to increase their pay, but that 64% of those that are seeking a pay raise said that they would stay at their current job if their employer gave them the compensation they were looking for.
If you are concerned about employee turnover, letting employees know your plans for increasing their compensation can help mitigate that concern. Plus, employees that feel valued are more engaged in your business and want to see it succeed, so offering higher compensation is an investment in your business’s success as well.
2. To reward hard work
Hard working employees are truly the lifeblood of a successful business, so rewarding their effort is a good idea! If an employee has been exceeding expectations in their role, a raise is a great way to show them you see and appreciate all their hard work.
You may consider setting performance goals or key performance indicators (KPIs) for your staff so that the results of their work are measurable. You’ll also want to pay attention to the things that can’t be measured but are just as important, like a positive attitude, initiative, and culture fit.
You can also create a growth culture by offering promotions and title changes along with raises. For employees who are individual contributors (i.e. non-managers), consider adding a tier for “Senior” or “Expert” level versions of their roles. An elevated title can go a long way with your top performers. Supporting your employees’ development in this way can make a major impact on their lives and your business.
3. To boost morale
In times of unprecedented stress and uncertainty, it’s no surprise that many workers are burned out. Taking steps to boost the morale of your employees is more important than ever and a pay increase can do just that!
Compensation that doesn’t meet employees’ basic needs can greatly contribute to additional stress outside of work. 26% of hourly workers we surveyed said that their income is not enough to cover all of their living expenses and 27% said that their income is enough to cover their living expenses and not much else. This is a staggering statistic and it’s understandably difficult for employees to do good work when they’re worried about their basic needs outside of work not being met. Even a small pay increase can have a positive impact on your employees’ lives, helping them feel more motivated at work and more positive overall.
Side note: Employee burn-out is a serious concern, and though raises can help, you may also want to consider offering employees options like flexible time off and mental health resources to help them cope and contribute to a healthy work life balance.
4. Your compensation is lower than the industry average
If your compensation does not meet the industry standard, it’s definitely time to offer pay raises. How can you tell? We recommend using resources like Glassdoor and Indeed to see how your compensation stacks up to others in the same industry.
32% of employees in our survey said they don’t feel they are paid fairly to others in the industry who work in a similar role. Over time, this feeling might lead to your employees looking for new opportunities. Paying at (or above) industry average should be a priority as an employer. Keep in mind that this also plays a role in your ability to attract and hire new talent to your team.
Clearly, offering increased compensation when possible has a lot of benefits for your business. However, if it’s just not possible to offer raises right now, know that there are other things you can do within your business to make employees feel valued.
Competitive benefits may play just as big of a role as compensation when it comes to employee satisfaction. In fact, we found that 66% of employees said they would stay at their current job if their employer offered additional benefits instead of higher compensation. If you can’t offer the traditional benefits, creative benefits like more paid time off (PTO), health and wellness classes, and remote work options can be affordable ways to make employees feel appreciated.
You may also consider offering hard working employees a one-time or periodic bonus if a permanent pay raise isn’t currently an option for your business. Over time, showing your employees that you value them and investing in them however you can will pay off.