What to do when you can't afford to give raises...

Question: “I’ve had three employees ask for raises in the last 10 days,” the boss tells me. “We’re just not in the financial position to increase anybody’s wage. But these are good people and I’m afraid I’ll lose them to better-paying jobs as the economy improves. What would you do if you were in my position?”

Answer: Employees rarely, if ever, believe they are making enough money. (Do you?) So there is always some tension between the reality of pay and the expectations of pay. Here’s what to do:

1. Know your numbers. Know all your employee-related costs (such as wages, taxes, insurance, benefits, overhead, training, support). Know if each employee is generating a profit or costing the business money, and exactly how much profit or loss.

2. Share the numbers with your employees. Does this sound scary? It might. But consider: Employees generally exaggerate how valuable they are to the business or organization. They generally exaggerate how much money they are making the business or organization. And they generally exaggerate the profits the business is making. Thus they generally exaggerate how easily the business could give them a raise.

So sharing the real numbers with employees is almost always an eye-opener for them. It’s a reality check.

3. Discuss with employees the connection between their efforts and the availability of more money to allow for higher incomes. Find ways to connect improvements in productivity with increases in revenue. Show employees how reductions in costs can directly result in increased revenue that can justify higher incomes.

4. Help your employees increase their profitable productivity. Explore with them what new goals they can set. Determine what they need to do, and what you need to do in helping them, so they can reach the goals.

5. Get all your employees involved in using their brains, their mental talents, to generate new money-making and cost-cutting ideas. An active, ongoing suggestion program can generate thousands of dollars per employee in new savings and profits, year after year.

Guest post by Jim Collison: Employers of America