SEEMS LIKE THE TOPIC COMES UP EVERY YEAR. MY EMPLOYEES WANT MORE MONEY. THEY’RE GOOD EMPLOYEES AND I DON’T WANT TO DISAPPOINT THEM, BUT I’M NOT SURE WHAT I CAN AFFORD. HOW SHOULD I GO ABOUT FIGURING OUT WHAT’S DOABLE AND THEN HOW DO I PRESENT IT TO MY EMPLOYEES IN A WAY THAT SHOWS I’M TRYING TO BE FAIR?
THOUGHTS OF THE DAY: Finding ways to get more money is something we all go through as individuals as well as business owners. Make sure you’re paying for the right things when you go to award increases. Consider bonuses and payments from profit as ways to reward performance without creating a permanent obligation. Be sure to talk to employees about ways they can grow and increase their value to the business.
Doing periodic check-ins on how much we’re making is a sensible thing to do. Individuals as well as business owners should be encouraged to analyze how they’re keeping up with economic changes.
Things tend to get more expensive as the years go by. If you want your employees to be financially secure, encourage them to think about how to keep expenses in line with what they can afford.
It just takes practice at learning how to have grown-up conversations about being fiscally responsible. Often business owners avoid the topic altogether, either thinking that it’s none of their business or that they might uncover some uncomfortable topics. If you do it right, you could be helping your employees to gain experience managing finances that could lead to long-term financial security. And you may get early-warning information from employees thinking about moving on because their income no longer matches their expectations. You may be able to do something to fix the situation, or you may be able to prepare for transitions that are likely to ensue.
If you are ready to hand out more cash, consider what it is that you want to reward. Is it to keep up with the cost of living? That’s fair. Use national standards to increase payroll by that small amount. Talk to your employees about why they’re getting a small increase for the year.
To be sure you have enough money to pay for cost-of-living increases, make sure you’re driving annual company growth in revenue and profit. If you’re not sure how much the company’s top and bottom lines need to increase to afford these raises, give us a call. We’d be happy to help you calculate it.
If your plan is to increase the amounts that you’re paying people beyond cost of living, consider offering bonuses to people who went above and beyond during the year. Bonuses and profit distributions are a good way to reward employees without committing the company to annual payments. These kinds of rewards tie the money people receive to the company’s increased performance. If you have a down year, you’re not forced to cut weekly payroll. You simply eliminate the year-end bonus or profit distribution.
Also make sure employees know there’s opportunity to grow. If they take courses, learn additional skills, take on more responsibility, they should be eligible for a promotion. With the promotion will likely go an increase in base pay. Identify slots that will be opening up in the coming year and make employees aware of those openings so they can prepare to apply.
BOOK RECOMMENDATION: “Designing Effective Incentive Compensation Plans: Create a plan that drives strategy, engages employees, and achieves success” by Sal DiFonzo with Karen Newcombe.
Andi Gray is president of Strategy Leaders Inc., StrategyLeaders.com, a business-consulting firm that teaches companies how to double revenue and triple profits in repetitive growth cycles. Have a question for AskAndi? Wondering how Strategy Leaders can help your business thrive? Call or email for a free consultation and diagnostics at 877-238-3535 or AskAndi@StrategyLeaders.com. Check out our library of business advice articles at AskAndi.com.