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Skip the Random, Small-Time Raises (Your Employees Will Thank You)

Handing out multiple raise per year may be the thing the cool kids are doing, but it's unlikely to make your employees happy in the long run.
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Companies that think they can win their employees' love and loyalty by doling out small change throughout the year will find the novelty effect is short lived.

I wouldn't actually turn down a raise (never actually met anyone who did), but don't jump onto this "great" new idea of giving small raises four times a year. In theory, it sounds good. I mean, who wouldn't like a raise every quarter? But, the reality is, four good raises a year isn't sustainable (unless you start your employees out about $100,000 below market rate, in which case, good luck getting them on board in the first pace). And four lousy raises are simply four times in which your employees' hard work is insulted by a pat on the head.

Think I'm wrong? Several companies do. The Wall Street Journal quotes Shutterfly CEO Jeffery Housenbold's reasons for doing bonuses four times a year, and pay raises twice as "You can resolve problems early versus letting them fester. If you let them fester for a year, usually people just go and update their LinkedIn profile."

Housenbold is making the very common mistake of assuming pay equals happiness. And, for brief periods of time, it can. If you give someone a big raise, they are far more likely to put up with your bad management for a bit longer, but eventually, they'll still leave. The number one reason people quit their jobs is not pay, but management. Housenbold could certainly resolve problems with employees regularly, and he should. All managers should meet regularly with all employees, and solve problems, clarify expectations and give feedback. There does not need to be a check associated with that.

And, in fact, what you can get when you use multiple small raises throughout the year is the false impression that everything is okay. You think you've resolved problems by handing out a raise, but you haven't solved any problems, because money is not likely to be the problem anyway.

Additionally, if your employee makes $50,000 and you give out a one percent per quarter raise, you may think, "Golly, I'm awesome! My employees get a four percent raise a year!" But, what do your employees see on their paycheck? Well, a one percent increase is $500 per year. Divide that by the number of paychecks, take out taxes, 401k, and health insurance and the employee sees maybe $15 in their bi-weekly paychecks. This is motivation?

Solstice Mobile, on the other hand, hands out big raises--seven percent--to it's staff. Do this enough times and employees will start a. expecting that kind of raise an b. wondering why their paychecks were so low to begin with. If you don't have the good management to go along with a good paycheck, it will not be effective.

What should you do instead of the latest gimmick?

Every manager should meet with their direct reports regularly. Goals should be set, followed up on, concerns addressed, and expectations clarified. Positive and negative feedback should be given, and people should be given public praise for jobs well done. If you aren't doing 1:1 meetings with your direct reports at least once a month, start it now.

Raises should reflect and reward performance. Once a year raises are good enough if they truly reflect an employee's hard work and the employee receives feedback throughout the year.

Remember hidden costs in multiple increases. It's not just the bottom line of salary dollars that costs money. Implementing this type of program costs a fortune. If you have 3 employees, it's no big deal, but as you grow, it will be a huge headache.

>Remember the paycheck. If an employee can't see the difference in his paycheck, he probably won't be impressed with the increase.

 

Last updated: Jul 22, 2014

SUZANNE LUCAS | Columnist

Suzanne Lucas spent 10 years in corporate human resources, where she hired, fired, managed the numbers, and double-checked with the lawyers.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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