The Reason to Increase an Employee's Salary

by Ruth Mayhew; Updated September 26, 2017
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Employers who routinely invest in their employees by giving them incentive bonuses or salary increases stand to make more money in the end. When employees feel the money pinch, the quality of their work suffers and the employer loses out. The best way for employers to keep employees productive in a way that positively affects the company's bottom line begins with taking the issue of money off the table altogether. Regular salary increases do just that.

Cost of Living

When employees can't keep pace with the cost of living, a cost of living increase offers one of the most justifiable reasons for raising salaries. Cost of living based salary increases in various geographic locations are usually standard protocol when an employee is transferring to another work site or business location. Within organizations that have several work sites and locations, there might be a relocation specialist who calculates exactly what it costs to live in another locale. Employers who raise salaries for cost of living, relocation and expatriate working conditions raise them to compensate for the inconvenience the employee undergoes.

Merit Increase

Although many employees and managers consider performance appraisals their least favorite tasks, a merit increase overshadows the dreadful evaluation exercise. Positive results from performance reviews and employee evaluations usually result in a merit increase based on the employee's level of performance. Employees who receive outstanding reviews typically are rewarded with greater salary increases. Employees who show minimal progress may still receive a salary increase, although a less generous one. In many organizations, the precise amount by which an employee's salary can be increased is usually tied to the company's budget, although supervisor and manager latitude can make exceptions because of the percentage variances among employee salary increases.

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Workforce Planning

Employees on a specific career track within the organization often receive regular pay increases that reflect a higher-level position and added responsibilities when the employee is promoted. If your organization initially believed that it needed a large number of employees to maintain production standards and later discovered that fewer employees could accomplish the organization's goals, the company might consider making salary increases because salary costs are lower with fewer employees. In addition, a job analysis may be recommended before making changes to salaries. Job analyses determine the job's value relative to its contributions to an organization's overall business goals. The more valuable a position is to the company's performance, the more likely it is for the employees in those positions to receive salary increases.

Recruitment and Retention

Employers who want to maintain a competitive position in their market, need to entice and retain talented workers. The lack of a competitive compensation structure might not attract the right kind of employee; your organization may have to settle for mediocre performers instead of the brightest and best in their fields. While money isn't the number one reason most employees leave their jobs, compensation does play an important role in a decision to stay with a company. Salary increases and retention bonuses are common in many industries and for certain professions in need of talented workers, such as registered nursing and information technology.

About the Author

Ruth Mayhew has been writing since the mid-1980s, and she has been an HR subject matter expert since 1995. Her work appears in "The Multi-Generational Workforce in the Health Care Industry," and she has been cited in numerous publications, including journals and textbooks that focus on human resources management practices. She holds a Master of Arts in sociology from the University of Missouri-Kansas City. Ruth resides in the nation's capital, Washington, D.C.

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