One of the hardest things about being a leader is disappointing people. And in the workplace, few things are more disappointing for an employee than asking for a raise and being turned down. In some cases,  even though the conversation will be difficult for you to have with the employee,  you have little choice, your department might be facing budget cuts, and you are doing everything you can to keep your team together. Or perhaps the employee may believe they deserve a raise and have earned it, while you think they are underperforming.

Regardless of the rationale, you want to have an honest and compassionate conversation with your employee. Remember that they are probably nervous about asking for a raise. They may not be aware of the budget cuts coming down the pike. And even if it is not true, they believe that their current salary does not reflect the value they bring to the company. In both of these instances, your employee is missing crucial information that may have changed their course of action had it been available to them.

How you approach this conversation will directly affect the outcome.

To ensure that you achieve the best result, follow these three steps:

Step 1: Schedule an appointment.

This is an important conversation, so make sure that you have plenty of time set aside to talk to your employee. Your employee may casually ask if you have a minute, and then raise the issue of compensation when you aren't expecting it. As soon as you know the topic of conversation, schedule an appointment with them to discuss it. This not only gives you time to prepare for the conversation, but it sets the tone for the interaction and shows that you respect your employee and take them seriously. To stop the conversation and schedule an appointment, you might say: "This is an important conversation, and I only have a few minutes now. Let's schedule some time next week to talk about it properly."

Step 2: Do your homework.

Even if you are certain that you will have to decline your employee's request for a raise, consider researching the industry-standard salaries and benefits for people in your employee's position. Then you are speaking from a position of having the facts to back your statements. What does the competition pay? Is your company's salary scale competitive? Or is it lagging behind? Review your employee's personnel file and think about their skill sets and value to the company.

If you have to decline your employee's request for a raise because of budget cuts, what other benefits -- like additional paid time off -- might be available to them? Consider other options that will add value to their experience as an employee, aside from increasing their salary.  And are these budget cuts temporary, or do you expect them to last for a longer period?

An important question to think about is: What has to happen before your valued employee can expect an increase in pay?

If you have to decline your employee's request for a raise because they are not performing to the level expected of them, you have a bit more work to do. Have you clearly communicated your concerns about your employee's performance? Are they aware that they are underperforming? Or will that come as a surprise to them? Review their job description and performance over the last six months and identify specific examples where they underperformed. Whenever possible, start with the facts:

"Your last project came in over budget by about 15 percent."

"At least 25 percent of your team has turned over in the last six months. That's a higher turnover rate than we experienced at any point in the prior three years."

"Customer retention has decreased by 30 percent in the past 12 months."

If you did not communicate these issues before now, take responsibility for your mistake and offer a sincere apology. Share your ideas for how your employee can improve, and make a plan that you both agree to and commit to taking action. Let your employee know how you will support them and the consequences for failing to improve. Finally, give them a timeline and a list of specific outcomes that will warrant a salary review.

Step 3: Prepare for the conversation.

While it's critical to do your homework in preparation for the meeting, it is equally important to get yourself in the right state of mind. This part of the preparation process is often overlooked and undervalued, but it is as important as doing your research and knowing what you want to say.

How do you want to come across to your employee?

You probably want to come across as confident, compassionate, and fair. But to accomplish that goal, you must think it through. 

First, write down the main points you want to convey. Second, consider rehearsing your points aloud until you are comfortable talking about your employee and why you will not approve their request for a raise. If you are not confident having the conversation, notice your posture while you practice. When you sit up straight, pull your shoulders back, and open your chest, it shows confidence and that you are engaged and receptive to speaking with them. Also, sit on the edge of your seat rather than having your back pressed against the chair. This keeps you alert, reminds your brain to pay attention to the conversation, and forces you to sit up straight. Finally, visualize the conversation, from when your employee walks into your office or signs in to Zoom to the moment the meeting comes to an end.

Be ready for your employee to be disappointed.

It's natural to be nervous when you know you have to disappoint someone. Breathing exercises are a quick and effective way to slow down your system. Take a few long, slow breaths. While inhaling, tell yourself that you are breathing in calm. Then, slowly exhale, telling yourself you are breathing out nervousness. Repeat this breathing exercise a few times. Also, notice your feet on the floor. Move your toes or tap your feet to get out of your head and into your body, grounding you before your meeting.

Then during the meeting, be fully present. This is an important conversation, and your employee deserves your undivided attention. Make eye contact and smile when you greet them. And keep an open mind, because they might have some good ideas to share as well.

Unfortunately, even if the conversation goes as well as possible, your employee will be disappointed. And they may have a strong negative reaction. Either way, acknowledge their disappointment and don't ignore their feelings. Be firm and clear in your communication, but also be kind. Give them the opportunity to share how they feel.

Preparing what you will say, getting in the right state of mind, and acknowledging their disappointment puts you in the best position for a good outcome and lets you show up as an effective leader.