How to Decline a Pay Rise Without Crushing Their Spirit

Pay can be a delicate topic for any business, as organizations must balance the need to keep costs to a minimum while simultaneously ensuring staff are fairly compensated for their time and effort.

Indeed, research by Payscale in its 2019 Compensation Best Practices report shows just one in five employees currently feel they are paid a fair amount. At the same time, two-thirds of businesses believe it is now getting harder to retain top talent due to an increasingly competitive labor market.

As a result, when an employee asks for a pay rise and the company simply can't meet their expectations, this can lead to some difficult conversations. Understandably, turning down their request will be disappointing, but there are ways to convey this message without causing recrimination.

1. Listen to their case for a raise

Taking the time to listen to a person's case for a pay rise should be an important part of the process of any pay review. While it may be a fact that the business simply cannot afford to offer a raise at that time, it's important to understand why that individual feels they should be paid more.

Once they've put their case forward, be open and honest with any feedback or areas where you might disagree. This needn't be a damning appraisal though, and indeed it shouldn't be if you want to maintain morale, but it should be viewed as an opportunity to put forward a realistic response based on the company's own situation and opinion.

2. Base your decision on facts

When turning down a pay rise, it's important for the employee to know that the decision has been properly reviewed and considered. For this reason, it's essential to show there has been a degree of work put in before coming to any decision.

One way to demonstrate this is to come armed with facts like industry pay levels that relate to their position and level of responsibility, experience, etc. In addition, managers should carry out their own assessment of the individual's performance to date, as the person asking for a raise will sometimes view their own achievements through rose-tinted glasses.

3. Never say never, but don't make promises

Nobody wants to hear that their pay will never go up, so when turning down a pay rise managers should aim to show employees how their own efforts can lead to a different answer next time.

In order to achieve this, it's important to come into the meeting with a plan to talk about not just their performance in the past, but any potential new opportunities, skills or efforts that could lead to a pay rise in the future. However, managers should never commit to any future pay rise at that time, as you don't want to be creating expectations that could come back to haunt you later.

Ultimately, turning down a pay rise request will always run the risk of jeopardizing an individual's commitment to stay with a company if they feel they're not being fairly compensated for their time and effort.

What if things go wrong?

Appraisals and manager meetings can make employees feel 'put on the spot', and it's entirely possible that they're asking for a raise simply because they feel it's something they're expected to do.

No one wants to look as though they're not driven enough to seek progression, after all - and that 'any questions?' section at the end can lead to a feeling of desperation to fill it with anything but silence.

You’ll likely find, therefore, that most employees politely accept your gently-reasoned decline of their request for more money and leave the office with the impression they’ve been fairly treated.

But what if they don't? What if things turn sour and you as the manager have to deal with the fallout? Here are a few worst-case scenarios and some top tips on handling them.

The employee gets upset and emotional

If your employee begins to shout, rage or cry after you have turned them down, it's vital to remain calm and non-judgmental. Don't lash out in return, no matter what they say. Instead, take a deep breath and pause while you carefully consider a reply and then deliver it in a measured way.

Don't give them the brush-off either, though. You need to acknowledge their disappointment and reiterate that this doesn't mean they’re not valued by the company.

Try mediating phrases like:

• I'm sorry to hear you feel this way...
• I know you're feeling disappointed...
• Let's work this out by...
• What I'm going to do is...

Try pointing out that there are other things that can be done to further their career, then schedule additional meetings immediately to set measurable, achievable and timely goals towards, for example, a promotion further down the track. If this won't be possible, perhaps consider a one-off bonus, training towards a new skill or extra vacation days.

Whatever you do, don't fall into the trap of reassuring the employee who has been upset every time you see them in the cafeteria afterwards. This can come across as patronizing when they might just have been having a bad week and are embarrassed enough.

The employee threatens to resign

Every manager dreads being held over a barrel by the employee who threatens to resign unless they receive a healthy boost to their salary. But what should you do when it actually happens?

The first thing to remember is that you mustn't allow yourself to feel held hostage if you know you've made the right decision based on the advice mentioned above. If you know a raise simply isn't possible due to performance or the company's situation, you might have to informally accept the decision to resign with a request for the person to think it over and deliver the paperwork to confirm by the end of the day.

This should weed out any idle threats and also allow you to double-check there's truly nothing you can do.

If, on the other hand, you're concerned the person is serious and you really don't want to lose them, it's still important not to simply dish out a raise that could cause a chain reaction of similar requests when everyone else hears about it.

Instead, consider extending the appraisal meeting to find out what’s at the root of the request. Is it just about a few extra dollars an hour, or is the employee actually feeling upset and underappreciated for other reasons?

Have they not progressed the way they should, for instance, or are they feeling out of place in the company? If this is actually the case, maybe they could be persuaded to reconsider their resignation in a similar way to the 'angry employee' already discussed.

The employee claims they’re being paid less than someone else doing the same job

Money is the ultimate taboo for many co-workers, but it's never good when someone realizes during a casual chat in the break room that they're being paid less than their counterparts. If they use this to rebuff your decline for a raise, you need to get to the bottom of it.

As mentioned earlier, you should already have come to the appraisal armed with industry pay figures and current pay rates from HR. You can use these to calmly point out that there are various reasons for differing salaries, including:

• Level of education
• Experience and step increases in pay
• Bonuses for long service
• Performance-related pay
• Additional responsibilities such as health and safety posts, fire marshal responsibilities, etc

However, if you feel your employee has a fair point and there are large discrepancies in pay across the company, then you may need to take a look at this from an ethical point of view. Could it be time to start making incremental salary increases to reduce the disparity company-wide?

You may wish to check out the Setting Compensation for Newly Hired Employees guide to help you do your research on this matter if you think this is the case.

The employee says their pay is different to a co-worker of a different gender

Be careful here, as your company may find itself violating the law and leaving itself open to legal action. Under the federal Equal Pay Act from the Equal Employment Opportunity Commission in the US, you must not discriminate on pay based on gender. Similar legislation is in force in other jurisdictions.

This also applies to race, religion, disability and a number of other criteria. If, for example, a woman can show she’s doing a similar job as her male colleague - with similar responsibilities and taking into account experience and longevity, etc - but receiving different pay, this could lead to a disparity case - and big trouble.

It's important to take action and carry out regular reviews to ensure this doesn't happen and all employees are paid fairly.

Hopefully this has given you some good tips that can be applied should the worst happen and an employee proves dissatisfied about your decision not to offer a raise.

According to the Society for Human Resource Management, it costs an average of $4,000 to hire someone new, so keeping your workforce happy come appraisal time is worth it - both for morale and for your bottom line. In the end, being open and honest about the reasons more money can't be given is always the best policy.