A friend of mine posed an interesting question a few weeks ago. He asked, “How much of a raise should you expect each year?”
In light of what is happening with the Sonic restaurants in Ohio, that is a valid question.
The problem is that the answer has too many variables to fit into a Facebook comment.
For instance, is the employee hourly, salary, or commission-based? Does the employee get any benefits such as healthcare (and how much does the employee have to pay out of their paychecks for these benefits)? Is the company experiencing growth or decline? How is inflation (and not just the overall number, but also locally)?
TAKE HOME PAY
A salaried employee is the easiest to figure out an appropriate raise. The employee should be getting at least enough of a raise so that his or her take-home pay is larger than the previous year adjusted for inflation.
If it only equals inflation, it isn’t a raise, it is a cost-of-living adjustment. If it is less than inflation, it is a pay cut.
I say take-home pay because if the employee has to pay any portion of his or her benefits, those often go up much higher than inflation. I heard the story of an employer who gave everyone a 4% raise because inflation was 3%. Unfortunately, because healthcare premiums went up 15% and the employees paid a portion of that, they had less take-home pay than the prior year to cover their other increased expenses.
Hourly employees follow the same rule, but the issue then becomes one of how many hours do they get? If you’re keeping the hours roughly the same, the same rules would apply.
Commission-based salary is different. In theory, the increase in prices of the items they are selling should lead to higher pay through higher average tickets. But if your prices didn’t go up (even as all other expenses did) you put your employees in a position where they have to work harder just to pay their bills. You may have to reconsider either their commission or offer them a base salary to compensate.
I tell you this because I always want you to think of your employees as assets to your business, not expenses.
I had another friend of mine get told in a review exactly how much this person had “cost” the company in terms of salary and benefits. The boss made no mention of how much this person had “made” in revenue for the company. Do you think the employee felt valued after that? Do you think the employee felt like the company had the employees’ backs?
EMPLOYEES AS ASSETS
When you think of your employees as assets, you invest in them to get the kind of return you want. You educate and train them. You give them actual raises, not just cost-of-living adjustments. You focus on the value they bring to your company, not the costs. You treat them as partners, as living, breathing, full-of-dignity human beings.
Do that and your staff will never walk out on you. In fact, you’ll rarely ever have to advertise for help again.
My grandfather always said, “You can never overpay for great help.”
He was right.
PS I was reading a Forbes article on 13 Employee Benefits That Don’t Actually Work. The second line in this article tells you all you need to know … “[Employees] like to feel valued and appreciated by the company they work for.” If your business doesn’t have the resources for raises, find other ways to invest in your team and make them feel valued and appreciated.
PPS If you’ve invested heavily in someone and that employee doesn’t bring you value, you need to cut him or her and move on. If you’ve invested heavily in several people that haven’t brought you value, you need to revamp your hiring and training programs. The problem is you, not them.