60-SECOND MANAGER

The war for talent means companies can’t skimp on raises, but they can give them out to just those who merit them

Howto be selective when giving raises.

Annual raises are a way for managers to show employees they’re valued, encouraging them to work hard and stick around. But budgets are tight in a bad economy, and there might not be enough money for every employee to get a healthy increase. That can lead to an unhappy workplace as valued employees get pay bumps, while others make do without. Allison Griffiths, a Toronto-based principal in Mercer’s talent business and a compensation expert, offers three tips on how to make sure managers don’t derail a company’s culture when handing out raises.

JUSTIFY IT “Most companies in Canada try to have what we call a pay-for-performance philosophy, which essentially means they want to pay top performers more than average or below-average performers,” Griffiths says. But your company might want to reward “high-potential” employees who could one day lead the business, or those with skills that are in demand, such as data scientists. There’s also the issue of internal equity: “If we published everyone’s salary, would we be comfortable with it?” she says.

Ideally, your human resource department will be able to help figure out who deserves a wage increase and who you’re going to be having a different type of discussion with.

COMMUNICATE IT It’s easy to tell people they’re getting a raise, but it becomes much harder if they’re only getting a small increase in salary, or none at all. Still, “it’s important that you communicate with everyone,” Griffiths says. Remember that employees talk to each other, often candidly, so managers have to be open and truthful. If some employees are not getting a raise because they are poor performers, it’s important to tell them that — but be prepared for a reaction. “They might even start crying,” she says. Ideally, you’ll have had some lead-up conversations about performance so the news isn’t a complete shock.

If the lack of a raise is more to do with a limited budget going elsewhere, use the conversation to thank employees for their contribution and to remind them of the other great things your company has to offer. “It’s important to remember why people come to work,” Griffiths says. “The money is important, but there are other ways to engage and motivate your employees.”

BONUS BUMP If you want to reward an employee for good performance but can’t do it with a salary increase, your company’s incentive plan might be a help. “A lot of organizations are moving to bonuses that you calculate year over year depending on the company’s performance, because it’s less risky,” says Griffiths, pointing out that increasing base salary also has an impact on other benefits such as pensions, and it’s an ongoing cost. “You can soften the blow of a small increase if you have an incentive program that’s funded differently,” she says.

As logical as it seems to reward your top workers, middle-performers deserve some recognition, too. “When managers make decisions around pay increases, they can forget about the good, solid performer who keeps the company going, is loyal and doesn’t cause problems,” Griffiths says. “They likely do deserve some sort of increase, too.”

It can sometimes make the most sense to give everyone an equal increase when budgets are tight. “This year, the budgets are so small, some organizations are struggling with 2-3% salary budget increases,” Griffiths says. “It’s almost impossible to differentiate on performance.”