How Often Should Employees Get Raises?

Last Updated May 6, 2019

One of the cornerstones of an employment relationship is financial compensation. Employees at all levels of any company typically respond well to this motivational tool. Employers who offer raises more frequently than others tend to reap the benefits of doing so, with advantages like increased employee production, loyalty and overall job satisfaction.

Pay Raise Factors

The question then becomes how often employees should be considered for raises and why they should be considered for them in the first place. There is no right or wrong answer to this question, as many factors can go into an employer’s decision to offer a pay raise to an employee. While reasons vary, here are several of the key factors that can influence a pay raise decision.

• Length of service – One of the most time-honored ways of rewarding employees for their work and dedication, and encouraging them to stay on board is to award raises for length of service to the company. By giving annual or semi-annual pay raises, employees have something to look forward to and an incentive to continue providing high quality work. One factor to consider, however, is that this method of giving raises may not always be as effective in achieving company goals as other methods.
• Proficiency – Proficiency-based raises, unlike longevity raises, are based on an employee’s continued and improved proficiency at his or her job. Pay is directly tied to the market value of the job, which is inherently tied to skills and performance. Therefore, any discussions about raises are fair and based on measurable ways of demonstrating skill and proficiency.
• Outstanding contributions – The most effective pay raises are the ones based on a carefully thought-out system of guidelines that present a clear path to raise opportunities for all employees. However, arbitrary pay raises are still valuable when they are presented to individuals who have clearly gone above and beyond their expected job duties in order to contribute to the company’s goals and vision. For example, if an employee is instrumental in identifying possible improvements, saving the company money or improving community relations, he or she is a great candidate for a raise.
• Achieving goals – Generally, the most effective performance reviews use SMART goals (specific, measurable, attainable, realistic and timely), and these goals tend to work well when they are tied to incentives for employees. Employers should regularly and collaboratively determine several key performance goals for their employees, and match these goals with pay raise incentives. 

The high cost of employee turnover is something employers want to avoid. Not only is a high turnover rate financially damaging, there are intangible costs as well. If a company has a high employee turnover rate, work environment often suffers and staff morale may take a negative turn – insecurity can increase, motivation can slow, teamwork can be inhibited and managers may lose the confidence of the work force. 

When a company implements a clear and consistent pay policy that includes raise possibilities for all, the message is sent that employees are valuable. Doing this provides workers with a frame of reference they can use during salary and raise negotiations. It can also help provide employees with the incentive to stay with the company for many years, potentially for the remainder of their career.