Employee Increments – Based on Tenure or Performance?

As business owners, our number one goal is most definitely to grow our revenues and profits, whether that be by an influx of service demand or due to process efficiencies in the business workflow. Let’s say we do achieve these goals and grow significantly every year, what then do we do about our team members, who’ve supported us and contributed to this growth? Employee management post growth in business is a pressing topic to deal with, despite it being uncomfortable for some entrepreneurs.  

Does an increase in revenue or opportunities coming in automatically warrant a raise for employees? Must an entrepreneur be obliged to pull up their employee’s livelihood or standard of living as theirs goes up? And then there arises the question of, what is a good enough reason for an employer to increment an employee’s salary?  

There are many arguments for and against this. As an entrepreneur who respects and values his employees, one way of looking at it would be to consider the number of years spent in the role as enough reason to offer a promotion of any kind. After all, the employee has dedicated those many years of their life to my business, it’s the least I can do to honor their existence. 

Existence. That’s where I stop myself to notice my choice of words.  

Do team members who just ‘exist’ deserve increments just because they’ve completed a year or longer with you? Or should it be linked to performance? 

I’d like to compare this scenario to that of someone who is in Grade 5 in middle school. The student wouldn’t automatically get to go to Grade 6 just because they’ve been in Grade 5 for a year. They would need to pass the exams and do the assignments, thereby demonstrating that they have the necessary increment in knowledge and skills to be qualified to go to the next level. This analogy is the same for when it comes to employee increments, the norm sometimes is that an increment should be provided just by the nature of the fact that someone has spent the last year with you and as a result, they deserve an increased salary, whether that be by 5% or 10%. 

Of course, there may be logical reasons for claiming an increment. For instance, it could be because there’s inflation in the market, which is fairly acceptable. But the reality is that it doesn’t necessarily translate to a change in the employer’s earnings.  

Another thing to consider is, is the employee out-pricing themselves by asking for an increment? For example, they earn a salary of AED 15,000 and they’re now looking for a pay package of AED 18,000 from the same employer, without having acquired any additional skills. The most logical thing that the employer would look at is, at the price of AED 18,000 is there another individual in the marketplace who has the additional skills they are looking for. 

An employee’s perspective: 

A lot of people have a sense of entitlement, that just by being a part of a company, whatever the duration is, whether it’s a month, a year, 2 years, or 4 years, that they are entitled to a higher income.  

As an entrepreneur, one would think: 

If an employee’s skills haven’t improved since the hire was made, then what is the context of asking for an increment? The delivery to the business or entrepreneur remains the same as when it was when they were hired. If they were just doing the same job and had not found a better way to either improvise, make processes more efficient, quicker, or deliver a higher quality result, then just by nature of being in the company for the last few years, an increment isn’t really warranted.  

A business, in any industry, is always a cash flow-based business. The reason there was a budget set for a specific role was based on what the business could afford and what were the expected deliverables.  

• If those deliverables haven’t changed by an employee coming on board and working on the business for the last year or two,  
• if they’ve not added any value to the process and,  
• if their deliverables still remain the same in terms of quality and quantity, 

then is it warranted for an employee to ask for an increment? 

Also, bearing in mind that if the increment was 20-30% then would it not be okay for the entrepreneur to consider hiring somebody who can produce the 30% better output? In the case of purchasing fuel, if you were to get 12 kilometers from AED 5 a gallon, would you be comfortable paying AED 7 for the same gallon if it still gave you an output of 12 kilometers? Or would you pay more only if the fuel gave you mileage for 30% more? 

As entrepreneurs we sell, but we’re also looking to be sold to. I remember years ago someone told me that everybody is dispensable. There’s nobody that should be sitting in their roles with the thought process that “the company cannot function without me”. As an employee, you have to think about reasons why you are indispensable to the organization or how you can put the entrepreneur in a defensive mode where they are thinking about reasons not to lose you and how best to keep you working with them. 

It’s all about becoming greater. As an advocate for full potential lives, would I be disempowering my employees by giving them a raise that’s not well deserved? Here’s why empowering my employees is important to me: 

From a personal standpoint, being able to play a part in somebody’s growth, whether professionally or not, and to see them grow under my wing is hugely gratifying. As an entrepreneur, the gratification that comes with seeing my team grow not only professionally but also from a financial standpoint is super positive for me- because it now allows me to deliver a higher proposition to my client. How I see it, salaries and bonuses are used as a way to acknowledge one’s unique abilities and their direct impact on the business. As one begins to sharpen and enhance these unique gifts, and the business is able to reap the rewards of an employee’s skill upgrade, there’s no reason not to repay the employee monetarily. 

What has your experience been with managing employee increments? And more importantly, what process do you use to justify a raise?