You've worked diligently to build your business. You've interviewed and stressed over hiring the right candidates to join your team. Most of them have worked out; perhaps you had to cut a few and chalked it up to learning a lesson.
Now you face a new challenge: the raise request.

What To Do When an Employee Asks for a Raise

How should you proceed? Perhaps you saw this day coming, but you are still uncertain of what to do. Can you even afford to give a raise? How you respond to a raise request depends on your business situation.

Aspects of a Raise Request to Consider

Here are a few things to consider before making a decision:

Can you afford to keep the employee?


If someone is asking you to triple their salary you were either paying a ridiculously low wage or they are asking for way too much money. If you simply can't make the numbers work out, you may have no choice but to let them find other employment.

Can you afford to lose the employee?


On the flip side of the equation, the employee may be incredibly valuable. Even if they aren't in what you think is a "critical" role, if they have been with your organization for a significant period of time they hold a lot of internal knowledge. Allowing that knowledge to walk out the door can be incredibly costly. If they leave you have to screen, interview, and train a replacement and wait several months for them to get up to the same speed as their predecessor.

What is the motivation behind asking for a raise?


This is a critical data point you need. Why exactly is this person asking for a raise? Do they truly feel they are underpaid? Or do they just not feel like a valued member of the team? Can you give them additional responsibilities in conjunction with a raise as part of their growth plan within your organization?

Are you paying a fair market wage?


Obviously, if you are underpaying then you probably need to give the person a wage. However, if you are offering a market average wage the employee needs to be an above average employee to justify giving them a raise.

Do you have a non-compete in place?


If you decide not to give the person a raise it is highly likely they will begin to look for employment elsewhere. One of the most natural places to look for employment is with a firm in your industry. But what happens if this employee goes to work for your #1 competitor? Do you have legal documents in place to prevent them spilling all of your industry secrets or preventing them from working for the competition within a certain period of time?

How to Respond

The best way to respond to a raise request depends on the factor above. It is highly recommended to speak with the employee in person behind closed doors about their request. Don't call or e-mail them; those methods of communication are too informal for this discussion.

It will also take time for you to come to a decision. Do not respond immediately when your favorite employee walks into your office and is standing in front of you. Tell them you will take it into consideration and will get back with them at a specific date. This will prevent you from reacting emotionally -- positively or negatively -- to their request.

When the time comes to respond, sit down with the employee. Sitting behind your desk puts you in a position of power, but that can also put up a psychological barrier between the employee. Consider coming around the desk and sitting next to the person or at a 90 degree angle.

Have an honest conversation and dig in with them on the reason for their request. If you are going to give the raise, lay out your reasoning, the details, and your expectations. If you are not going to give the raise don't hesitate or falter. It is far better to speak directly when delivering bad news.

At the end of the day, stay true to your principals and business mission. One employee is not worth keeping if you sacrifice the integrity or success of the business.