Few things can make business owners squirm more than salary negotiations, no matter how large or small the business. Finances are often a balancing act for everyone, but even more so for business owners, mainly because owners can demolish the perfect budget by offering an employee too much just as they can lose that same employee by offering too little. Before sitting down at the salary negotiation table, there are three factors business owners should always consider for fair compensation.
1. The Current State of the Market
The market influences employee compensation in two ways. The first is the amount other professionals are being paid to perform the same job as the individual being considered for a raise serves as an indication of how much that individual should be paid. That being said, business owners should also look at the amount of experience, level of education and overall job performance of the employee as well as the size of the company. Someone working in IT for a small company is unlikely to receive the same pay as someone with the same amount of experience employed by a larger company.
The second way in which the market influences employee compensation and salary negotiation is the overall rate of unemployment. When unemployment is high and there are more people applying for a single job, they might be willing to accept a lower salary if it means they have a steady and dependable income. On the other end of the spectrum, it’s when the unemployment rate is low and jobs are plentiful that applicants may not be so willing to accept a salary that’s not commensurate with their levels of experience and education.
2. Company Profitability
If a company isn’t making much in the way of profits, salary negotiation may not even be an option for several months or possibly even years. After all, business owners can’t pay employees money the company doesn’t even have. It’s when a company is successful and is expecting to remain successful for the foreseeable future that owners usually feel safe and confident about offering raises.
On a related note, there might be key individuals who help sustain a company’s profits, and those individuals could receive higher salaries and be considered for raises before other employees. This is something that should be made clear to employees who may feel as if they aren’t appreciated the same as other employees who have been with the company for the same number of years. It’s not that those employees are any less appreciated, simply that they fulfill a different role in the company.
3. Overall Employee Performance
It only makes sense to consider the company’s best performing employees for salary negotiation. While it can be tempting to give raises to employees who complain about their salaries, doing so sends the wrong message and can start a dangerous precedent. When employees learn they can earn a raise by complaining rather than working hard, employers often end up with well-paid employees who provide lackluster results, which is bound to hurt the company’s performance.
It’s much better to send the message that employees will be eligible for salary negotiation when they prove themselves worthy of a raise through their day-to-day performances and willingness to help take the company to the top. To make it a little easier for employees to improve their job performance (and for business owners to build a better business), it can be beneficial for business owners to inform employees of training or continuing education opportunities, or for owners to actually offer those opportunities themselves.
On a related note, business owners should also refrain from offering raises simply because the cost of living, groceries and everything else has increased. While this seems as if it makes sense, employees should use increased costs as an incentive to work even harder at their jobs to prove themselves worthy of a raise in order that they can maintain their current lifestyle.
While salary negotiation can sometimes be a prickly subject between employee and employer (especially when the employee is unable to receive a raise for whatever reason), it’s a discussion that needs to be had, even if the employee isn’t actually getting a bump in compensation. The reason for this is that employees should be clear on what does and what doesn’t qualify them for raises and the factors that influences their likelihoods of receiving raises. For more on building a better business, be sure to explore more of the expert articles and tools right here on Mighty Recruiter.