Employees look forward to it every year: the chance for a pay raise. A survey from Hay Group, a consulting firm, estimates that the average pay raise is 3 percent as of 2012. If your business cannot offer pay raises this year for whatever reason, take steps to thoroughly prepare ways to deliver the bad news.
Planning how and when you announce the news of a salary freeze plays a big part in how it will be received. Time the announcement as soon as possible so the news doesn't leak out early. You don't want your employees getting the news secondhand -- it's better to control the time and way the information is distributed. Arrange for a company meeting to announce the news in person, and time the meeting appropriately. The best time to announce discouraging news to an entire staff is later in the workday and closer to the end of the week, according to Inc. magazine.
Be clear and upfront about the news. Tell your staff simply and directly that there will be no raises this year, then explain the reasons. For most small businesses, salary freezes are directly tied to financial performance. If a company loses money, breaks even or only posts a small profit, it usually can't afford to offer raises. Let your staff know that because the company did not meet certain financial criteria, raises are not possible. You don't have to go into a lot of detail about the specific numbers, but you should let the employees know the reason raises were not approved.
After the news has been announced, be prepared for disappointment at best and anger at worst. It's important to let employees discuss how they feel about the announcement. Arrange for a company representative to hold a question-and-answer session so employees can share their concerns and insights. This also gives them a chance to suggest ways to improve the company's performance. Maintain a demeanor of professionalism and support and be a good listener. If an employee needs to vent, let him vent, and answer his queries honestly.
Employee morale is likely to drop after hearing news of the salary freeze, so offer workers something positive to take out of the meeting. Thank them for their hard work and give them examples of some of the positive things they accomplished this year. Lay out new goals the company plans to reach with their help, so that next year things can improve. Give them hope that their static salaries won't last forever. However, refrain from making promises you can't deliver.