2-Minute Business Lesson: The ROI of Employee Raises

By Mary Rogers

This month marks the launch of a new monthly column …

The Case Study: The following situation happens every day in small businesses. Linda is a dream of an employee at Banyon Coatings. She has been with owner Bob for 3 years, having become indispensable as office manager. When she joined the company, sales were stagnant and Linda tackled the inefficiencies in processes, freeing up salespeople to sell. She provided customer service triage resolving most situations on her own without interrupting sales staff. She was very capable in supporting the sales team, something no prior office manager had been able, willing or interested in doing. The impact was enormous and immediate. The sales team was able to focus on their customers which resulted in higher sales, bigger commissions and greater profits for the company. All good, right? Wrong.

While the company thrived and members of the sales team were buying new cars and going on luxury vacations, Bob forgot to ever give Linda a raise. She was given plenty of praise, but no raise. Linda felt unappreciated and dreaded asking for a raise. Just the act of asking for more money would be a confirmation that Bob hadn’t thought she was worthy. These thoughts dogged her everyday as she drove to and from work. She considered looking for another position outside the company. But she loved her job and the people at Banyon.

The Question: Could this be happening at your business? How often do you surprise a great employee with a raise, even a small one, to acknowledge their contribution to your business? The typical business owner waits until the employee comes to them and expects a rationale to be presented, justifying the raise. This scenario is one that causes immense stress for an employee, who may love their job and perform above expectations. Employees come into this conversation feeling unappreciated, a bit angry and small.

So, let’s say Linda finds the nerve to ask for a meeting where she justifies a raise of $2,000 per year, about 5 percent. Bob says, “Sure.” Meeting over. Bob was completely unaware that she’d never gotten a raise. Cost: $2,000.

Imagine this instead, Bob calls Linda into his office: “Linda, your initiatives have had a larger impact on this company than anything I’ve been able to do for years. I never thought my office manager would be such a profit driver around here. I want to thank you and your next paycheck will reflect that appreciation.” Cost: $2,000.

Which version of this story makes for a happier and more productive employee?

The Lesson: When employees do not get a raise or promotion, in their mind you have already considered it and decided NO, when it may have never occurred to you at all. Consider if any employees are deserving of a raise and the impact on your business if they left today.

Mary Rogers is the director of the Northwest Regional office of the Michigan Small Business Development Center, which assists small business owners with a wide variety of business challenges including human resources, accessing capital, strategic planning, increasing profits, exporting and more. Learn more about its free services by calling 922.3780, or visit sbdcMichigan.com. Hosted by the Northwest Michigan Council of Governments.