Compensation

Pros and Cons of Surprise Raises

With low unemployment comes an increasing risk of turnover—and this makes employers weary in times when the economy is growing but not skyrocketing. Employers today are facing these risks and trying to determine how to keep employees happy and motivated—and keep them from job searching in their spare time. Some employers are opting to provide workplace flexibility, others are shoring up their benefit packages, and still others are considering whether there’s any room in the budget for pay increases. Have you considered any of these options to reduce future turnover?

pay outRecent data indicate that a lot of employers are planning on giving pay raises. The Society for Human Resource Management (SHRM) notes that salary budgets are projected to rise about 3% this year, just as they did last year[i]. But each employer may vary on how they plan to spend that increase in budget.

For those employers that are considering pay increases, there are a lot of ways to go about it. You could provide bonuses (which may or may not be tied to specific goals), you could provide simple cost-of-living raises, you could provide merit raises to high-performing employees, or you could choose any number of ways to increase total pay through a mix of options.

Some employers opt to give an unexpected raise to all or most employees when they’re faced with the fear of losing key personnel. But what are the pros and cons to giving surprise raises? (By “surprise” raise, we’re meaning raises that are not necessarily negotiated for or tied to a specific goal that was achieved—raises that come as a surprise to the employee.) Let’s take a look.

Pros of Giving Employees an Unexpected Raise

Giving a raise to an employee when it’s not tied to performance or cost of living can actually have several benefits:

  • Pay raises, especially when the employee does not have to negotiate for them, can help to boost employee morale.
  • Higher morale can positively affect productivity, especially in the short run.
  • By raising everyone’s wage, it helps to keep long-term employee pay at appropriate levels in comparison to new hires.
  • Raises can mean employees have less of an incentive to look for another job (assuming the raise keeps the employee pay in alignment with market pay levels).

Clearly, employees benefit from receiving an unexpected raise, but employers can benefit, too.

Cons of Giving Employees an Unexpected Raise

Unsurprisingly, however, there are also drawbacks to giving raises that are not tied to performance or cost of living:

  • Giving this type of raise can set a precedent in which the employees now expect a raise again in the future. While they may or may not expect it every year, it may actually cause future resentment if another raise is not forthcoming.
  • Without being tied to performance, it’s possible that any productivity gain noted above will be short-lived since the employee did not have to meet any performance criteria to earn the extra income.
  • If everyone gets a raise, it can actually cause some resentment among high performers, who may feel their efforts are being overlooked or underappreciated.

Does your organization surprise employees with an occasional raise? Are these raises usually tied to some external factor (like cost of living), or to some performance-related factor, or are they truly a surprise? Or do you wait for employees to ask for a raise and then negotiate it on a case-by-case basis? What has been your experience?

[i] https://www.shrm.org/resourcesandtools/hr-topics/compensation/pages/salary-budgets-2017.aspx