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Annual merit raises, etc10/31
How are you guys handling pay raises and such? Currently our system is in need of something less ambiguous, and we've implemented in the past 6 months systems of tracking performance in more concrete ways than previously. I'm able to walk into an annual team member review with more data on how well they've done than previously.
I know there are a LOT of variables that could factor into this.....but overall, do you guys give a certain percentage raise?
If someone is excelling and being assertive, 4%? 5% raise?
If someone is "acceptable" but not exactly stellar, 2% to keep up with cost of living?
Just for context, we are about 20 people in size, locally owned. Custom cabinet manufacturing/installation.
That sounds about right. If their performance isn't that great there is no reason you're obliged to give an increase
Cost of living just to stay on par. But fixed percentages every year? Watch it - 5% every year for 10 years will give over a 50% increase.
David, you bring up some good points to consider.
We try to stay above par for pay wages, so far that's helped us keep more reliable people on staff, it's rare that I need to cut anyone loose during their 90-day eval for being unreliable or unteachable.
We're trying to avoid the expectation of a certain amount of raise every year, for precisely the reasons you've stated.
Stocks and or performance bonuses. Stocks can only be sold back to the company! Stocks create a vested interest in the well being of the company. Other workers(stock holders) won't tolerate inefficiency from their co-workers.
Year 1. Surprise
Year 2 some what expected
Year 3 not only expected, in many cases “pre spent”
Same for year end or holiday bonuses.
Why is a raise expected just because an employee didn’t screw up bad enough to get fired?
The reality is that you have to pay competitive wages.
Sea44 - If for nothing else, cost of living is 3% a year. $20.00/hr becomes $23.18/hr in 5 years with just 3% cost of living increases.
Our overhead also has the same increase.
Your question or at least its intent is as old as when the first guy got hired to chop down a tree.
Keep in mind EVERYONE ELSE who is getting paid through your jobs (i.e. - suppliers, subs, etc.) all have employees and their costs go up and get passed along to you... If annual raises concern you, because you're afraid that your business can't sustain raises, you can also develop a bonus schedule and/or profit sharing as an alternative to raises that allow employees to earn more while also benefiting the company based on metrics that support your company... tying them together with your companies success allows you to ensure the money will be there...
As an example (your numbers may vary) 5% cap of your salary, but that 5% is the high water mark of what you can earn... If the company only reaches 60% of it's profit/productivity/(add whatever metric you want) goal, then they would get 60% of 5%, or 3%...
Then there are things like health benefits, more time off based on years of service, etc... it's about creating a collaborative environment where it potentially benefits everyone as a team in the same way (puts a little pressure on the weakest link as well)... if someone stands above the rest, there's nothing wrong with an extra spiff for the efforts... and done publicly to motivate others...
But before you even go there, you should work on having at least 3-6 months of Capital Reserves and Emergency Fund set up...
Because times are not always going to be fat...
Simple if you are paying enough you are not loosing skilled help. You have to keep up to retain your help, period end of subject.