How can I decline a raise request, yet still maintain employee morale?
February 16, 2012 10:39 AM   Subscribe

Small business owners: Is it possible to turn down a request for a raise from employees, yet maintain workplace morale? On the flip side, have you been turned down for a raise, but stayed in your position?

I run a small business (5 full-time employees) in a niche media/arts industry, and in the past two weeks, two separate employees have come to me (one on the verge of tears) requesting a raise that I simply can't afford, and I'm at a loss on how to properly respond and proceed.

I understand that salaries are a very difficult subject to discuss and are dependent on a myriad of factors including geographic location, job description, relative value to the business, etc, however I was wondering if anyone else has been in a similar position (on either side of the fence) and was able to handle it gracefully.

Both employees are in their mid to late 20's, and have been with the business for over a year and are absolutely great at what they do. They are definitely hard workers, and have brought a lot value to the business through their own networks and relationships. I have provided them both with detailed job descriptions that give objective criteria on what defines the standard of their work, and have conducted reviews at set 4-6 month intervals and adjusted salaries upwards on those occasions, in some cases over 10%. I have put a great amount of time and effort into training them, and into giving them their independence to have ownership over their areas of the company, and very much want to hold onto them and make them feel valued.

That said, we are a very small business, and pretty transparent. Everyone knows how much the business is billing and spending for the most part, and while we are definitely growing and profiting, I have been putting that money back into the business to grow it.

I drew on my own experience of being an employee and set up what I feel to be a very positive office environment. I'm often the first to arrive and the last to leave. I'm not strict with hours, and very respectful of personal time requests. I offer time in lieu, ample vacation and sick days. I try to offer generous perks and take my staff out for lunch or other activities as much as possible. The training they receive will enable them to move onto much higher positions as they continue their career, and I am under no illusions that they will eventually move on. The worst thing that I probably have done as an owner is try *too* hard to be a nice boss. I also know from my experience as an employee that it can be very easy to think that your boss is just being greedy and how that can turn you really sour, when the reality is that I don't take home a great deal much more than them, and that with taxes and our other expenses, I am honestly paying them as much as I can without stressing our cash-flow to ensure they have steady income. At the same time, I am older than them, have owned the business for much longer than they have been working in it, and am therefore able live a different lifestyle which is by no means extravagant, but definitely bears some signs of financial success, which I am already pretty self-conscious about.

I told both individuals that I would be taking time to figure out how to best respond to this, as we're a small team, and emotions can run very high and affect us as a group.

I've been considering things like cutting my own pay and giving it to them, or offering other incentives such as bonuses or commissions, but I'm wary of being on a slippery slope. Futhermore, I've looked at job ads for similar positions in similar areas of the industry, as well as talked to close friends, and feel that I can objectively state that the salaries are fair and in some cases higher than the market value.

If I had the money, I would give them a raise, but it's simply not there. For some reason I think they just wouldn't believe me if I said that. I tried looking at the root of the issue and seeing if there could be anything else that is really bothering them, and I'm honestly am not sure. Some part of me feels that there is a level of naivety in them in terms of the reality of what wages are like in a niche industry, or that they might be trying to live lifestyles that they simply cannot afford, but bringing things like that up will definitely not be constructive in terms of trying to resolve this conflict, and it might also not be true. At the end of the day, each approach that I have come up with comes off as being too defensive.

There is obviously a lot more nuance and detail that is in this situation, but for the sake of the question, I just wanted to throw open the question broadly and hear about other's experience being on the other side of this type negotiation. Even if you are not an employer, but an employee who has have a raise request turned down, has this ever been turned around into an amicable solution? Help!
posted by anonymous to Work & Money (42 answers total) 15 users marked this as a favorite
What are your other benefits? Workplace flexibility? Can you add to vacation or paid holidays? Is telecommuting as a possibility? I think quality of life benefits can make up for lower salaries in some ways. At least that is what I have convinced myself of during my career as a public interest attorney/non-profit person.
posted by anya32 at 10:42 AM on February 16, 2012 [5 favorites]

If you trust the employees, show them the numbers. Have a meeting, go over the financials, and demonstrate to them that you can't give them more cash without stressing your cash-flow.

Then ask them what they think would be a fair way to help demonstrate your appreciation for their work, and turn it into an afternoon workshop/discussion.

Small businesses are like families. If you like your employees, trust them and ask them to help you solve the problem.
posted by Jairus at 10:43 AM on February 16, 2012 [10 favorites]

Can you afford to NOT give them the raise? As in, if they quit, could you afford to hire and train a string of replacements who might not be as good at the job and even might ultimately decrease overall productivity?
posted by hermitosis at 10:43 AM on February 16, 2012 [5 favorites]

Here's what I would do: you may think you're being transparent about your business, but they may not see it the same way. Make transparency into a system: have a weekly meeting -- every single week, mandatory and without fail -- in which you go over the numbers with the staff.

"This week, we took in x, our overhead is y, our variable expenses on those sales were z, the total payroll (don't break this down by individual) is q. x - (y + z + q) is p. Out of p, we're putting some percentage into the capital fund, we're using some to pay off the new computer, and we're using some to do this other thing."

Then you make a game out of getting p up (ethically, and without cutting quality or service), and you commit to sharing the increase as a bonus every quarter. You put some large percentage of of p into the capital fund, because that's where you make up the shortcoming on those weeks when p is a negative number, but you share the rest. (Maybe you share it by individual sales, or by hours worked, or you just cut it into 1/6 pieces and each take one -- talk with the staff about how they think it should be dividided and then stick with it.)

Have a look at the books The Great Game of Business and A Stake in the Outcome for more details on how to do this.

What you're doing is making a commitment to your staff that you will give them raises if they can find ways to pay for them. This will take some iterating to really get right, because at first you may have them trying to shift expenses off-column to make p higher than it really is. But if you can get it right, you'll have your employees thinking like owners, and you'll share a lot of the responsibility for the business.
posted by gauche at 10:53 AM on February 16, 2012 [26 favorites]

Basically if you agree that they deserve it, you need to be able to offer them SOMETHING, even if it's not as much as they'd like.

Otherwise you can count on the fact that from now on they'll pay a lot more attention to where the money in your business (and in your personal life) seems to be going.

I will never forget how a boss I had once haggling with me endlessly about a very fair small raise, and then later that month I had to do all the legwork to help him replace his mega-expensive new (at the time) Blackberry TWICE, because once he dropped it in the toilet and another time he lost it on the subway. Watching him shell out all that money for things that I considered a luxury (though I'm sure he felt he "needed" them) after he'd basically plead poverty to me in our raise negotiations left me with a lot of bitterness.
posted by hermitosis at 10:54 AM on February 16, 2012 [12 favorites]

and have conducted reviews at set 4-6 month intervals and adjusted salaries upwards on those occasions, in some cases over 10%.

Have these employees had these reviews? Have they had pay increases in the time they have worked with you? Because if they are getting a review 2x a year that includes rises, it's a bit out of line to ask for one now, IMHO.

With each one, I would lay out their salary history, their soft benefits, the industry regional average, and the fact that the business simply does not have the cash flow for additional rises in the midst of a recession. Be aware that if you give raises to two, the other three will pitch up almost immediately, and then you have a problem not with two pissed off employees, but five.

On the other hand, I would tell them you're open to cutting costs if they can see a way to do that.

PS: I asked for a raise in a job and didn't get it. It was amicable.
posted by DarlingBri at 10:54 AM on February 16, 2012 [9 favorites]

Here's a way to think about it. It's all about some kind of growth path, and money is one part of that.

Where do you see these employees going? Where do they see themselves going? Is their job here a stepping stone to another (perhaps more lucrative) job (either at another company or maybe starting their own)? If so, is that OK with you -- could you replace them with equally good employees that will in turn, after a few years of working for you, move? This is not necessarily a bad model, and what you can give your employees here instead of money is experience, contacts, support, and encouragement. You'd need to be willing to say (at some point): "Look, you've done all you can here. You could keep doing you job here but I can't pay you more, and you've learned a lot, what I can do is try to help you get in with my friend Jane ..." With this path, no need to open the books.

On the other hand, if you (and these employees) see them staying with you for a long time, you need to show a different path, and this probably does involve being transparent about money. If, for example, you have a goal of growing the business to the point where everyone gets a raise, let them know about that goal. Tell them about the (concrete) steps to getting there. If possible, as direct as "Look, if we can pull in X$ of business, everyone gets a 5% raise. If we pull in Y$ we get 10%." If you're putting money into things that will grow the business, let them know what those are and what you expect to get out of it. Ask them for feedback. This is a great time to figure out if any of them are (if you grow) the right kind of folks to take on more responsibility.
posted by feckless at 10:55 AM on February 16, 2012 [1 favorite]

What about implementing some kind of profit sharing that is specifically tied to how much money the company makes? At one of my old jobs, a certain small percentage of profits went into a bonus pool, and then that was distributed among the employees (it was distributed different ways - sometimes equal for everyone; sometimes percentage of salary; sometimes based on merit).
posted by dpx.mfx at 10:56 AM on February 16, 2012 [1 favorite]

I'm the employee. It was a small business, doing pretty well, but facing a particular difficulty that made additional raises difficult to manage or maintain. Because of the role I was in, I knew this and I knew why, so it wasn't a question of believing him when my promised raise didn't happen. I stayed on.

And then shortly thereafter I quit. The snowflake details are that the reason it was financially difficult were due to his mistakes, and that I was already incredibly underpaid and overworked. He was also the worst boss I'd ever had in terms of, well, everything. There was no possibility for advancement and my skillset was not particularly transferrable. there was abolutely zero flexability, no benefits, and we were working under physical conditions that are actually illegal. With all of that, the reason I quit was because my boss was a complete and total asshole on a level that I had and hopefully never will experience again, and I was willing to overlook all the other crappy things but this became a dealbreaker.

Unless you are that guy, and you don't sound like you are, I think you've done pretty much everything you can here. Perhaps having a meeting where you run over the numbers and putting it all on the table might make it easier to swallow [nobody is getting a raise at this point, and here's why], but the fact is that if they really NEED and WANT the money you may not be able to keep them. At the same time, they might also be able to suggest things they'd take in lieu of a raise (more vacay, telecommute, whatever).
posted by sm1tten at 10:56 AM on February 16, 2012

The rule of thumb where I work has always been that if you turn down a raise request, you can expect the person to start looking for another job.

I have been putting that money back into the business to grow it.

Well, investing in your workers is also putting money back into the business. But I'm not really going to focus on that if you honestly feel you can't shift some of the profits from equipment, travel, advertising or wherever else you're investing back to payroll to grow your talent base.

Whatever you decided to do now, you should seriously consider setting a salary cap for these positions. People can get better and better, but usually not in a given position indefinitely forever and ever. At some point the salary satisfies the job needs and is good enough to replace a good worker without much trouble. It's not reasonable to think you can get 3-10% raises annually on any position forever. At some point you cannot really do any better satisfying the job conditions and that's reason enough to cap the salary. You can let new employees know the potential salary range and structure going in.

You sound like a great employer and if you're paying appropriate wages for this job in this market, and it sounds like you are, your employees are doing well. It's possible they could jump up the ladder a rung or move to another part of the country and make more, and perhaps that's what they're contemplating. But if they've indeed reached the cap of what your business can pay, and you can't imagine stretching that upper limit to keep even the very best candidate, that basically tells you what this position caps out at. You can share that with them. I'd urge you to make sure it's fair, not influenced by gender/race bias, etc - and transparent to everyone - raises work like this until you reach the cap for this position, which is $XK.

If people are chafing at the LEVEL of their job perhaps it's time to create some new rungs on the ladder that they can move up to, take something or other off your plate and supervise an area instead of working solo. Totally depends on your workflow, style, structure, etc but in the end creating a new job for a great person could be an excellent investment, especially if it reduces your minutiae and frees up some leadership/thinking time for you.

Also I'm concerned because you say they came to you "in tears." I don't know if they were pleading hardship, but basically, that doesn't belong in a job negotiation and shouldn't sway you. People shouldn't get raises because they just need more money or their home budget isn't working out. They get raises because they are doing an excellent job satisfying your requirements and you want to recognize and reward them for that. When someone asks for a raise you can ask them to make a case - what can they show you about their recent productivity, impact, improvement over last year, critical difference they're making, etc. The onus should be on them to say "I am asking for a raise because...." and have some good reasons that can be expected to mean something to you, their boss, about what great work they are doing and how you want to keep them.

If you read about motivation-hygeine theory you learn that salary alone isn't usually a deal-breaker for staying in or leaving a job, but it becomes disproportionately important to employees once other job conditions make them feel less satisfied. So I'd be worried if you have reason to think the employees aren't happy with the projects, the hours, the management structure, the recognition, etc. But if you are as good an employer as you sound like you are, then that's probably not an issue. Yes, it could be that if you are working with younger employees whose main experience in the field is you, that you have a little naivete going on. There's a lot of that out there these days.
posted by Miko at 10:56 AM on February 16, 2012 [8 favorites]

I've looked at job ads for similar positions in similar areas of the industry, as well as talked to close friends, and feel that I can objectively state that the salaries are fair and in some cases higher than the market value.

Wait a sec. Do you have a business plan? Growth projections? Compensation strategy? Get those! And then, I think you need to be very objective with these folks and present real, current detailed comparative information as a critical aspect of your growth model. You have run the comps, you have a schedule of raises you have planned for when you reach your margins, they are not driven by anything other than the margins. Having said that, you are more than happy to discuss other meaningful ways of compensating: work from home, discount on Rx, an increased match in their 401(k)s etc etc etc.
posted by thinkpiece at 10:57 AM on February 16, 2012 [3 favorites]

Miko: Well, investing in your workers is also putting money back into the business.

This, with the critical difference that money invested in things other than your employees is more securely yours. Your employees won't thank you for reinvesting profits into the business unless they can see that it will ultimately benefit them. "The business" is just a less liquid part of your own wallet. Being cash-poor isn't the same as being poor.

I can objectively state that the salaries are fair and in some cases higher than the market value.

The market values for the positions these employees occupy, or the market value for their skill sets? If it's the latter, they they'd still be better off leaving you for greener pastures.
posted by jon1270 at 11:10 AM on February 16, 2012 [3 favorites]

Er... If it's NOT the latter...
posted by jon1270 at 11:12 AM on February 16, 2012

Do you have a business plan? Growth projections? Compensation strategy? Get those!

Haha, yeah, make time for that while running your small business and doing payroll and, you know, working with customers and doing employee reviews and doing the books and paying taxes and actually shipping product. As if! I mean, I'm sure there ARE small business owners who can actually get that done; I personally can't IMAGINE, in a six full-time person shop.

You do reviews TWICE A YEAR with employees, and give raises at that time? That's amazing! Then these people are out of their minds, God bless. You sound like an awesome and thoughtful boss; I would try to find what else you can offer them that's important to them, tell them when they can next expect a review of performance and pay, and continue being nice to them. Also, sometimes people just need to be heard.

You own the company; you bear all the risk; you have all the sweat and skin in the game. Someday, maybe they will too. Protecting the business--and their salaries and benefits--is your number one job. Sometimes that means not paying people as much as you "should."
posted by RJ Reynolds at 11:21 AM on February 16, 2012 [8 favorites]

You said you have provided raises of 10%. That's very generous. As a minimum, you should be providing employees with annual raises to account for COL increases.

Anything else unneeded... unless the employee has increased productivity significantly, or is involved with business development.

I've always been of the mind that if I, as an employee, wanted to have a significant raise, I should look elsewhere.
posted by KokuRyu at 11:25 AM on February 16, 2012 [1 favorite]

The only thing I can add to the already excellent advice in this thread is that research (done by my old company) showed that people leave jobs because they feel unappreciated, much more often than because they can make more money elsewhere. So if you can't pay them more - and it doesn't sound as if you should - then reduce the risk of them leaving by sincere, vocal respect and appreciation.
posted by fingersandtoes at 11:28 AM on February 16, 2012 [2 favorites]

You sound genuinely fair-minded and you have given two generous salary increases in the past year. I don't know your industry, but most people I've spoken with have been getting pretty close to the rate of inflation once a year. Many people are relieved to not be on furlough or other arrangements that reduce their take home pay.

That in itself doesn't make the situation rosy or mean that if you decline the request that your employees will see it that way, but if you are paying a respectable industry average wage and you have given good raises then you have already demonstrated good will. Can they jump ship and instantly earn >20%? If not, very likely then you are paying a competitive wage.
posted by dgran at 11:28 AM on February 16, 2012

Well, you are missing something here in description of your workplace situation... its not one, but two of your staff coming to you requesting increases and doing so in tears.

Somewhere there is a significant disconnect between the experiences and expectations of you and your employees. Its not clear from your question where that is or might even be (other than the obvious = compensation) as its sounds like you are entirely confident in the decisions you've made for your business.

But by framing the situation as the compensation is not part of the conversation means you have prematurely cut off an avenue of solution, and therefore may be hurting your business in the long run.
posted by RajahKing at 11:29 AM on February 16, 2012 [4 favorites]

I'm just going to throw in a few other things to think about using the perspective of a former employee who was bothered by the monetary discrepancy in addition to my experience as 1 person business (it is related).I've also talked to a few friends who run their own small business with a few employees and talked how they view salary and retaining employees.

As a former employee of another company, I had access to see how much our company billed per hour for someone with my experience; I'm going to guess as a small business your employees have seen this for your business, too.

When I learned this information as an employee, I was bitter and concluded that my salary should be 3 to 4X more than it was.

Now that I work for myself, I know that money that comes in does not = my entire salary. There are additional taxes, money to pay an accountant, etc. (I really, really had no concept that a check on my desk was due to other departments doing work). If I were you, then I would point out that even if they see a lot of business or a high per hour/fee, it does not all=profit and why.

The other thing that I am going to point out (both as a former employee and from talking to small business owner friends who have a few employees) is: Besides the pay check, what is the main motivation of your employees? Some people value time, others value learning opportunities, and yes, some see $s. But I would have this conversation now and also for any future employees. Why? The last job that I thought was not being fair in terms of pay...was not a problem because I made sure to get training for what I wanted to do next. A friend who has 1 employee...his employee stated upfront that she is 10 years from retirement and values time-- so in the summer, he lets her leave at 3:00 or early in the day, etc., and although he adjusts her salary to stay with market rate, the most important thing to her is flexibility with her time. I think that your workplace would be a great place to work for someone who wants to eventually own their own business (if I understand what I read correctly -you train them and are very open). Anyway, I would have this conversation with your employees and try to give them other benefits (vacation days, etc.) if they are unhappy right now and it matches his or her motivation. Also nthing Miko, if a salary increase fits with their performance, not tears. Don't reinforce that method of negotiation.
posted by Wolfster at 11:34 AM on February 16, 2012 [2 favorites]

Why exactly do your employees come to you in tears?
posted by KokuRyu at 11:34 AM on February 16, 2012 [5 favorites]

Yeah, the tears seem like a red flag for me. Why is this person crying? I've gotten annoyed about my salary, and I've left jobs because of low salary (and I'll probably do it again someday) but the things that brought me to me boss in tears were *never* about salary - they were about workload, lack of clear goals at the job and organizational level, feeling like no one valued my contribution to the organization.
posted by mskyle at 11:53 AM on February 16, 2012 [3 favorites]

Yeah.....I've been with the same company for 5 years. I've NEVER gotten more than 3.8 percent as a yearly raise (it's the structure of our company, in that we only get "raises" beyond COL if we move upwards in position). I've been frustrated before and had my own personal financial difficulties before.........bit I have never gone crying to a boss before. I mean, honestly, if things are how you paint a picture of them being, these employees sound like they are doing pretty well, as in they are being paid competitively as well as getting what sounds like TWO raises in a year (and now asking for more, after only a year?).

I dunno....honestly? I think they might need to suck it up in this case, or look for another job.
posted by Windigo at 12:01 PM on February 16, 2012

About those tears, could it be a result of that employee having a lower salary than their colleagues despite doing the same amount of work? Because feelings of injustice are just one of many things that office politics can result in and this is absolutely dangerous to the culture of your business. If and when people learn that politics is what drives salaries and benefits and not competence and hard work, people will start to feel unjustly treated and learn that to outdo each other.

What I find troubling is that this discussion focuses so much on salaries and not the overall satisfaction of your employees, especially since you seem to pay them industry standard salaries. Can you genuinely say that your employees:
* Have a reasonable work burden?
* Little to no overtime?
* Reasonable work schedules?
* Can cooperate great together and enjoy each other's company?
* Have a high level of autonomy as compared to other colleagues in the industry?
* Can (eventually) advance in their careers both wrt to responsibilities and power?

Some of these things are very difficult to achieve as a small business owner but maybe they can at least guide you as you try to assess the overall satisfaction of your employees.

I really wish you the best and I'm rooting for you.
posted by Foci for Analysis at 12:18 PM on February 16, 2012 [5 favorites]

You don't have the money, they're already getting paid quite well and they're trying to emotionally manipulate you by crying. You can't give them money you don't have and they can't expect you to take them seriously if they do cry when asking for a raise.
posted by mleigh at 12:19 PM on February 16, 2012 [1 favorite]

How much more profit do you need to be able to afford the higher salary? Set some goalposts for bonuses. Though obviously that will probably just make things worse if they aren't reachable.
posted by empath at 12:22 PM on February 16, 2012

When you knock back the request for a raise, be very clear to your employees what they need to do in order to secure a raise. Without an action plan, or aspiration, they will feel like they've hit a wall working for you.

And don't put a specific value on their work, however tempting, i.e. don't say something like, "Well I've looked around, you're getting paid industry standard", because everyone feels they are better than standard this will foster resentment. Instead say, "You're doing great work, but business is tight, and to get a raise, you will need to take on more responsibility in x, and y. That's the difference between someone on your current salary, and where you want to go. If you can demonstrate by June that you are doing A, B, and C, and show me how it's improved our business by D, E, and F, then you can get your raise."

Obviously, don't say this if you have no intention of giving someone a raise.
posted by smoke at 1:15 PM on February 16, 2012 [1 favorite]

Haha, yeah, make time for that while running your small business and doing payroll and, you know, working with customers and doing employee reviews and doing the books and paying taxes and actually shipping product. As if!

Yuks aside, every business, no matter how small, should have a basic plan that includes a compensation strategy. If the OP is considering cutting his own salary to pay crying employees, he might want to consider taking a less "wet" approach and getting some professional distance via a plan or at least some advice. Winging it, guessing, feeling it out, handling stuff on the fly is a recipe for trouble. Been there, more than once.
posted by thinkpiece at 1:29 PM on February 16, 2012 [2 favorites]

Oh and another yes to the business plan - no, you cannot wing it.
posted by mleigh at 1:33 PM on February 16, 2012 [1 favorite]

I've been listening to the Managers Tools podcasts recently, and when listening to the episodes about feedback I suddenly realized that what has been missing from every job I've ever had is positive feedback. I've heard vague "congratulations" and intermittent half-hearted "good job" comments, but no one has ever told me specifically what I did right. That makes it really easy to brush off those halfhearted compliments. Even now that I'm making what to me is a ludicrous salary, I feel unappreciated because I never hear specific, positive feedback - only negatives.

The other thing that bugged me in one job was the lack of autonomy. Sure, there were flexible hours. But if the boss said I was going to fly out in two weeks, I was going. It's not like we had needy clients to handle - they were understanding of our schedules. It was just that my boss couldn't be bothered to plan more than 4 weeks in advance, and thought it was okay to yank us around the country because she couldn't glance at a calendar for 3 straight weeks. Basically, that "flexibility" in the schedule was all talk when the rubber hit the road. It also told me how important her direct reports were - less important than her "never plan ahead" way of doing things.

I'm not saying that either of these are problems that your employees have. But I am saying that these are things that have nothing to do with salary, yet made me feel really undervalued. If your employees are coming to you crying and asking for raises, perhaps there is a problem besides money that makes them feel undervalued.
posted by Tehhund at 1:42 PM on February 16, 2012 [2 favorites]

I don't believe the types of employees you describe would be asking you for raises unless they think you have the money to afford it fairly easily, and believe (for whatever reason) that they deserve it. At some level or another, they believe that you are making too much money for the work they are doing.

I strongly suspect that most workers badly under-estimate your expenses and over-estimate how much you take home. They also tend not to have a huge amount of regard for the need for a contingency or rainy-day fund for the business. You could try to be more transparent and hope they feel better about their share of the pie.

However, my inclination would be to put together some sort of profit sharing arrangement from which you all could benefit. You could leave current pay alone and begin phasing in some profit sharing based on future increases in revenue and profit.
posted by LowellLarson at 2:26 PM on February 16, 2012 [1 favorite]

have brought a lot value to the business through their own networks and relationships

If this is value that you would lose if they took a job elsewhere, you should take that into consideration when deciding if you have the money available for a raise or bonus.

Taking your staff out for lunch or other activities isn't necessarily a perk. From the employees' point of view, it takes up what would otherwise be non-work time, and the monetary value of the lunch isn't theirs to do with as they wish. If the boss asks you to lunch, it's seen as a bad idea to refuse -- they could be cancelling other plans to do these things with you. If you are discussing business during lunch, these are work time. If you want to give them a restaurant meal as a treat, give a gift card to cover them and a guest.

Employees generally have no idea what the expenses of a business are, sometimes to the extent that they don't even think of their own salary as something that comes off the top, let alone other expenses. Ever talk to someone who has a long-held dream of running their own [insert glamorous or romantic sounding business]? That's how many people conceive of business owners.

I don't know what these signs of financial success are that you feel so self-conscious about, but unless they help your business in some way they might be hurting it by the impressions they give about you -- if it helps your business to get rid of an expensive car or luxury watch, that might be a sacrifice you need to make. Keep it in your retirement account instead of showing it off to everyone.
posted by yohko at 2:56 PM on February 16, 2012 [1 favorite]

When I was in my twenties and working with others in the same age group, the handful of people who asked for raises "in tears" across several work environments were in some serious financial situations wholly independent of whether they felt they were honestly due for a raise - abortion or other medical debt, emergency car repairs, family crises, etc. Getting an influx of cash at work was a solution to an problem, not a reflection of their satisfaction with the job or the boss. If this might be the case, does your business have a relationship with a local credit union? Subtly directing the two employees in question to short-term loan options, if they are in fact in some sort of crisis, might be helpful.
posted by Iris Gambol at 3:05 PM on February 16, 2012 [2 favorites]

I strongly suspect that most workers badly under-estimate your expenses and over-estimate how much you take home.

I think most people have no idea how narrow a profit margin can be for a small business. When we owned a restaurant, financed by us, most of the staff seemed to think that we had a money tree in the back yard and could just go pick the stuff as needed. I don't think you need to open your books to them. They probably think that the company is paying for those lunches, not you personally, and figure they'd rather have the cash in their pocket.

And Iris Gambol has a great suggestion--maybe a money management class?
posted by Ideefixe at 3:06 PM on February 16, 2012

I think the perks the OP describes are sufficient. Personally, being taken out for lunch or an excursion by my employer is fucking painful, unless there is plenty o' booze involved. Instead, I want to have flexibility in work arrangements and opportunities to develop in my role, should I take the initiative. Feedback is good, too, although I grow weary of the shit sandwich approach, because some supervisors are really only interested in communicating the shit, and throw in the sunny stuff to alleviate things (not because they value the sunny stuff).
posted by KokuRyu at 4:25 PM on February 16, 2012 [1 favorite]

I respect where the idea comes from, but if I came to my boss and asked for a raise, and was instead offered a class or a lecture on how to better manage my own money, I'd be pretty pissed.
posted by hermitosis at 4:35 PM on February 16, 2012 [9 favorites]

3 years ago, we had 12 employees. Now we are 6.

Nobody who works for us has asked for squat since Ms. Yuck showed them how to compile reports from the accounting software. I can not begin to describe the other effects of opening the books. Morale is great. We willingly spend time together after work. I look forward to the workday solely because of who the people I get to work with have become since they had access to the guts of the business.

Opening the accounting made the employees think differently about their jobs. Some of the reports they devised changed everything. All of us can do managerial things now and they can see that we bonus them when we have a good month. They can see exactly why Harry, Dick and Theodosia get larger bonuses and there is no resentment anymore.

They can also look back to our grim beginning in '99 and see what the return on our investment is. They can see when we don't deposit our own paychecks. They probably think we are idiots for trying to survive this economy, but they know that it's the gas station or the dry cleaner for them if we go down. I'll be that guy in the bathroom with a gun in my mouth.

So all of us try harder. Nobody has to tell anyone what to do anymore. Everything is obvious and we'd like to keep this thing going. Everyone here has horror stories about previous jobs and they want to spend their days somewhere nice.

Anon- You need to make everything clear and discuss the business with the employees if you want to see some real teamwork when the duck squats over your pinwheel.
posted by Mr. Yuck at 5:04 PM on February 16, 2012 [5 favorites]

I've worked for small businesses almost my entire working life (so upwards of 20 years) and to directly answer your question: yes, I have had raises turned down or delayed, and maintained an amicable relationship with my employer. Transparency is key. You don't have to open up your books like an IRS audit, but you do have to sit down with these employees and lay out some explanations and examples of income versus overhead.

You say, Everyone knows how much the business is billing and spending for the most part, but this may not be true. In a small business it's easy to assume that "everybody pretty much knows everything," but some or all of your employees may benefit from a very direct and clear conversation about the company's financial situation.

Concrete example: The company I work for *has* been affected by the recession, and while we "all saw it coming" pretty early, the owners still sat us all down in Jan 2008 and said (in a nutshell), "This is what we made last quarter, compared to the same quarters in 04, 05 & 06; this is what we think is coming (with, for example, higher health insurance costs, higher cost of materials due to higher fuel costs, etc etc). We all have to tighten our belts, raises and bonuses are gonna be smaller and less frequent, we'll try to compensate with more flexible hours and vacation time." We have not lost any employees.
posted by soundguy99 at 5:37 PM on February 16, 2012 [1 favorite]

It is almost universally the experience that employees see less transparency than the employer thinks is being provided. So, I'd definitely include a company-wide discussion of the finances as part of your response. The second factor is to explore whether there are expenses that you can shift in response to the request. For example, if you are investing in new hardware regularly, would the employees prefer to work on older equipment for slightly more pay? Can they see the benefit (and cost) of the reinvestment you are putting into the company?

I think it can be amicable in that you can respond respectfully and offer information and perhaps some control of a small portion of the budget, but you need to plan on the possibility of replacing these folks. It sounds like you are doing the right steps to evaluate the request, but it is not good business to pay them more solely because they asked, particularly as it sounds like they may be relatively naive in what they think you can provide.

A longer term strategy is to start giving regular business management sessions. I know it was quite informative to me as a young architect to learn that (and why) a firm needed to bill my time at $80 an hour just to break even on paying me $25 an hour in salary. At first blush those sorts of proportions seem ridiculous, but when I started learning the math I at least understood it better. Overhead is a complicated and non-intuitive topic.

tl;dr Don't compromise your business or your own sanity to try to appease them, you owe it to yourself and three other employees to make a fair and rational decision.
posted by meinvt at 8:38 PM on February 16, 2012

People have given such great suggestions, but I still feel like there's something missing: namely the information of *why* two out of five of your employees came to you at this time in particular. Do you know? It seems very odd that people who are already being given reviews and raises twice or more a year would *ever* feel the need to come forward and ask for a raise, so I feel like there's some missing piece of information here. I feel like you need to address whatever caused them to both come to you, now, very explicitly.

I also feel like you gave us a very detailed account of everything from your perspective, but only a few small pieces of information about their perspective. Do you know, in great detail, what their perspective is? Have you really looked at things from their viewpoint? Unless you could already write a lengthy discussion about everything from their perspective, such as you did for yourself, I don't think you are ready to make decisions. You need to do some more question-asking and listening.
posted by parrot_person at 3:05 AM on February 17, 2012

I agree with the other suggestions that if you're comfortable, share your financial situation. However, be careful that if you say something like "I've only got $100,000 in the bank", they might turn around and think "that jerk has the money, he just wants his six figure bank balance, my bank account barely has $5,000".
[I] have conducted reviews at set 4-6 month intervals and adjusted salaries upwards on those occasions, in some cases over 10%
From my persepctive, you're a fantastic boss. I get reviewed once a year and in spite of being told I'm awesome and fantastic and how no one else does what I do and how it would take over a year to replace me, get less than that. You know, because the company doesn't have the money (a statement I disagree with, they have it, the just choose to spend it differently).

(On the positive side, I graduate in two months.)
posted by Brian Puccio at 6:05 AM on February 17, 2012

First of all, I think you're doing the right things - you are a fabulous boss. I work for a boss/company that's very similar to yours in both size and my boss' attitudes and transparency, and as a result I care about the company as if I owned it.

As several other commentators mentioned, although you're making an effort to be transparent, maybe things aren't as transparent to them as you might think.

For me, it took a few months before some of the numbers really clicked. We're billing out at $100 an hour, and I make $14/hour. Oh yeah, but then the sales guy gets 20% commission. And then there's rent, utilties, office supplies. And what??? I heard from a business owner recently that with WSI, insurance, pension payments etc. an employee paid $14/hour actually costs the employer $30/hour. What? I cost my boss $30/hour? Understanding details like this is very humbling, as an employee. And suddenly that $100/hour that I thought was profit is looking a lot slimmer.

One thing that my boss does when there's an issue, is he asks me what I want to do. So my suggestion would be to show them the numbers, explain that you would like to pay them more but that you can't, and then ask what steps they would like to take so that they can earn more.

At my job, we have a profit sharing, which is a really great idea because everyone has the ability to control the money in the pool - rather than paying commission bonuses only to salespeople, you can reward the people who ensure satisfaction and repeat business, reward people for keeping costs low, and essentially, everyone shares in success or failure without putting any strain on cashflow.

And for the record - as an employee, I believe 100% that the bussiness owner (my bosses, or you) deserves to earn more than the employees. Do what you need to to keep and satisfy your employees, but don't feel guilty over making more.
posted by Jade_bug at 9:03 PM on February 18, 2012

Mod note: From the OP:
I was hoping to mark these three as best answers:

I also wanted to just give my most sincere thanks to everyone who has chimed in - There is some definite concrete advice that came up, some which never occurred to me, which I will be using to inform my upcoming and future decisions on this matter. As the subject of raises come up frequently on the green, I hope that this question has provided some valuable insight not just for me, but other people who might come across the issue, especially to shed some light on how some employers approach the issue. Thank you again!
posted by jessamyn (staff) at 7:31 PM on February 19, 2012

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