How Often Should You Give a Pay Raise to Your Employees

Many companies, particularly small ones, are unsystematic about giving pay raises. They sometimes do it arbitrarily when the company is doing well but withhold raises when employees feel they’ve worked hard enough to deserve one. If you want to retain and motivate good employees, it pays to think through your compensation strategy.

Cost of Living

If the inflation rate is rising, you want your company’s pay to keep pace with the cost of living for your employees. They shouldn’t feel as if they’re doing the same job for less money each year. It’s wise to ensure that general pay keeps up with inflation with a modest annual raise across the board.


Beyond this, it is a good idea to use more substantial pay raises as a way of motivating individual employees to do better for the company. Set out exactly what goals you expect the employee to work toward, and eventually meet, to merit earning more money. This system should be transparent and fair to retain the employees’ respect. In this case, the timing of the raise depends on the employee’s own progress. You might find yourself giving raises to certain people every couple of years and to others every six months.

Industry Standard

Especially if you are operating in a competitive industry with a skilled workforce, it’s important to keep up with the going rate in your field. If you don’t do this, you could find that key employees are being poached by your competitors, simply because they’re prepared to offer more money. Set an annual goal of reviewing wider industry rates so that you’re confident you’re keeping pace.


If the company doesn’t have completely clear future prospects, you can use bonuses as a way of motivating employees without committing to long-term wage hikes. A one-off bonus is a one-time hit to your profits, and you have considerably more discretion to tailor it to your budget at any given moment. You can give bonuses as a year-end standard, or you can set goals for individual employees to work toward before giving a bonus.