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pay rise talent retention

Human Resources

How to get a pay rise – and how to avoid giving one (without losing talent)

Published 31 August 2022 in Human Resources • 6 min read

As inflation skyrockets, companies are being besieged with pay rise demands. What’s the best way to secure one, and how can managers resist pressure to bump up salaries?  

As the cost of living soars, many people will be thinking about asking for a pay rise. In the UK, inflation is rising so quickly that workers could need an annual salary hike of 18.6% by January 2023 just to command the same purchasing power as a year before. 

For employees, the good news is that it’s a jobseekers’ market right now in many, but not all, sectors. The historical tightness in labor markets in developed economies has given workers stronger bargaining power to negotiate higher wages, so long as their demands are framed strategically. 

For organizations, of which many are already facing pressure on their own cost bases, this presents several quandaries – including how to attract and retain talent while simultaneously tightening the purse strings. Companies will need to think creatively and find other ways, besides upping pay, to motivate employees and lower attrition rates. 

There’s always a risk when asking for a pay increase, so employees will need to relay their request carefully in order to increase the likelihood of success. 

Negotiating too aggressively can backfire. You may be seen as selfish or too pushy. Unfortunately, this is often the case for women, who can be punished for being seen to be too “assertive” at work by being rebuffed or isolated. This means women tend to be less likely to ask for a pay rise. On the other hand, sitting tight and waiting to be offered extra money is no way to further your career or improve your circumstances, either. 

Advice for employees: Come armed with data 

The starting point for anyone looking to increase their earning power should be finding out what they are worth. It’s important to come to the discussion armed with the right metrics: pay negotiations are all about data. A big part of this is gathering intelligence on whether you are already underpaid, or even overpaid, relative to your peers. 

In some countries, such as Sweden, official income data is available. For those in other nations, there are countless online wage calculators to help you get a sense of where you stand. This is a good foundation from which you can ask for a pay rise. While it doesn´t necessarily mean the data you have is perfect, it shows that you are well-prepared, and most probably would prevent you from being brushed off with a comment such as, “Our data tells us that you are being fairly compensated, thank you.”  

Frame the conversation 

Pay can be a taboo topic, though it varies between cultures. A good way to start the conversation with your manager is to ask whether the company is considering cost of living pay increases for staff who may be struggling. Frame it as curiosity, rather than a demand. It’s important to recognize that, just like you, organizations face pressure on their own cost base. 

At the same time, you cannot expect your employer to throw money at you if you’re not a key contributor. Firms will want to hang on to their star performers, and they are more likely to meet your pay demands if you can demonstrate a tangible return on their investment.  

Don’t assume they know your value to the organization already. You need to state your case and back it up. Provide examples of your key achievements that have generated value for the firm and note any increases in responsibility. If your track record is average, be honest with yourself: your request is likely to be denied, regardless of the cost of living increase. 

Leverage another job offer 

A substantial proportion of the workforce is prepared to quit their job if they don’t get the pay deal they want: 43%, according to an EY survey of 17,000 people across 22 countries and 26 sectors. Many people are taking advantage of the higher rates of attrition, dubbed the “Great Resignation”, to find new roles with better pay and conditions. 

So, is it better to stay loyal and negotiate internally, or jump ship to another firm? 

Job hopping can be an effective way to boost your earning power, but it should be a last resort. If you have asked for a pay rise multiple times and been rebuffed, there is little choice left but to seek progression elsewhere. If your rise is justified, you may need to give your employer an ultimatum – but be prepared to follow through if they call your bluff, or you risk losing credibility.   

Pay rise negotiation
There’s always a risk when asking for a pay increase, so employees will need to relay their request carefully in order to increase the likelihood of success.

 

But it is a high stakes move to walk out the door. Despite the hot job market, the global economy is edging towards a recession. Some major employers have announced hiring freezes or layoffs. New joiners without a proven track record could be vulnerable.  

Also, switching employers could raise a red flag. Hiring managers do not want serial job hoppers. Recruiting and onboarding a new employee is a costly process. Why bother if the person is likely to leave just as quickly as they arrived? 

In this environment, it might be worth thinking about asking for alternative employee benefits. Companies may be more receptive to other forms of compensation that have a clearer ROI for the organization, such as a budget for professional development in the form of conferences or training.  

On the flipside, for employers, managers are likely to come under growing pressure from staff to lift wages to help deal with the rising cost of living. How can they retain talent without breaking the bank? 

Advice for managers: gather HR intelligence 

Familiarize yourself with your company’s HR policies and procedures on compensation, so that you know the pay structures and frameworks. There is often an information gap, leaving managers without the intelligence they need to handle wage negotiations. 

If you’re being besieged with pay rise demands, it’s important not to make any promises you can’t keep. Stay calm, listen to staff demands, and say you’ll look into it. This gives you time to consider the request more thoughtfully and plan your response. 

But how can you keep staff when there’s no money for a pay rise? Most reasonable employees will appreciate it if you are transparent about the company’s financial situation and demonstrate integrity.  

Look beyond the money 

There are other incentives you can offer too. Pay is an important driver, but it’s not the only motivating factor for staying put. For example, people need to feel they are doing something worthwhile, so a clear and meaningful company purpose is key for holding on to talent. 

Offering perks when your hands are tied and budgets are constrained demonstrates that you value your employees. This can go a long way in helping them maintain their sense of self-worth – an important factor in any individual’s decision to stay with a firm. 

Career progression matters enormously to talent too, especially for younger staff. So, if you can offer good learning and development opportunities, this can boost staying power.  

Employees also value the option to work flexibly or have more vacation time. For those with young families or caring responsibilities, this can be a significant benefit that can even outweigh small pay increases. 

Ultimately, the greatest lever you can pull is good management. It’s often said people don’t leave companies, they leave bad bosses. No matter how well-paid a job may be, people will quit if their reporting relationship is unhealthy. Focusing on being a better manager and motivating your team will go a long way to staving off staffing problems.  

Authors

Lars Häggström

Lars Häggström

Senior Adviser, IMD Business School

Lars Häggström is a CBS Executive faculty member and an Executive in Residence at IMD, while at the same time heading up Enable Performance, a consulting company focusing on driving large-scale change in global organizations.

Jennifer Jordan

Social psychologist and Professor of Leadership and Organizational Behaviour at IMD

Jennifer Jordan is a social psychologist and Professor of Leadership and Organizational Behavior at IMD. Professor Jordan’s teaching, research, and consulting focus on the areas of digital leadership, ethics, influence, and power. Professor Jordan has received specialized training and certifications in lie and truthfulness detection, as well as in conflict resolution within organizations. She is Program Director of the Leadership Skills for the Digital Age program, the Leadership Essentials Course, and the Leading in the Digital Age program.

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