To avoid painful raises, take a hard look at what you pay everybody around you. Take a strong consideration to getting outside evaluations of every position, what the pay should be, and then very clearly in the hiring process, tell them, “Here’s the current pay rate. These are the expected raises if performance allows. Meaning if there’s no performance, there may possibly be no raise, not even a COLA or cost of living adjustment.” Even though you have an HR department that supposedly doesn’t allow other people to know what other people earn, that type of information gets out and it is what it is. If everybody is playing under the same rules, the same employee handbook, and if everybody knows what everybody else makes, so be it. They’re all performing and they can be proud of somebody getting a substantial raise and bonus because they know they earned it.
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This is the podcast where my wife and I go back in our 25 years of running what is now four-time Inc. 5,000 Company with 100 plus employees. We go back and look at what are we in the middle of that other business owners might find value in. Episode 302 is something that is fresh. I just had a meeting with our top five management. We brought in a couple of consultants, a mini board of directors. We hashed out some things and one thing that came up that I thought was very poignant that other entrepreneurs and business owners have either already dealt with or if you’re going to grow a business, there is no question you are going to deal with what we dealt with. I don’t know any other way than say what happened and then you guys can take away from this podcast whatever nuggets you find valuable.
Over the past 24 months, let’s say our top ten employees averaged between 16% and 82% raise in the last 24 months. How do I know this? I know this because we finally built a traditional long-standing, proper SHRM-driven employee handbook and HR department. It took eight months. It took my wife going down to SHRM conferences in New Orleans. It took an exhaustive amount of work and my wife, Kerri, ended up making a two-inch thick employee handbook that outlined annual raises, paid time off, hiring and firing, and promoting situations. Covering the new employee handbook with all employees was like ripping duct tape off my hairy chest. It was like taping my whole body with duct tape and then not quickly, like in the 40 Year Old Virgin, ripping the duct tape off the chest. It was like slowly pulling it back and watching every single hair pull out of my body.
It was so painful because we’re in the middle of massive growing pains and when you get right down to it, there is nothing healthy about providing liberal raises to that degree. What ended up happening is we found out that there was severe animosity in our office. They were very misguided, misunderstood expectations of bonuses and raise that everybody throughout the company’s probably going to get this coming Christmas and it was painful to watch. What I’m saying is Kerri and I for growth’s sake, when somebody would bring to our attention that somebody else in our company was deserving of a raise, our quick knee-jerk reaction was, “What do you think?” A number of them would say, “Okay.”
We were growing so fast, it was more of a convenience promotion, convenience hire. It made sense at the time. We could deal with it later. What ended up happening is it became so unhealthy. The expectations, the jealousy, the severe jealousy and animosity. There’s a number of people that are no longer with us because they came up for a raise asking for an amount that was literally astronomical. One individual was expecting a 100% raise and in his world, he completely justified it based on X’s and logically, it was like saying, “Because Notre Dame beat Navy and Navy beat the University of St. Francis and the University of St. Francis. This team beat a high school team, they should get a promotion.” It made no sense, but in their mind, they were able to justify because so and so got X, then they were entitled to X.
What I’m saying is you might want to take a hard look at what you pay everybody around you. If you have employees, if you don’t have employees, I want you to take a strong consideration to getting outside evaluations of every position. What the pay should be, and then very clearly in the hiring process, tell them, “Here’s the current pay rate. These are the expected raises if performance allows meaning if there’s no performance, there may possibly be no raise. Not even a COLA, cost of living adjustment. My point is to be very clear so you don’t have to deal with the two days of meetings that I had to deal with and my wife had to deal with. It was almost in tears across the board of how misguided we allowed our company to get.
I’m hoping this episode resonates with some people now and if it doesn’t yet resonate with you, that’s great. Maybe I caught you in time and because of this episode, you can be very slow to assess a pay rate of a new employee and even slower and very methodical in a raise to an employee knowing that everybody around that person is watching. Even though you have an HR department that supposedly doesn’t allow other people to know what other people earn, I’m here to tell you that type of information gets out and it is what it is and you have to brace for that. If everybody is playing under the same rules, the same employee handbook, the same guide posts, then if everybody knows what everybody else makes, so be it. They’re all performing and they can be proud of somebody getting a substantial raise and bonus because they know they earned it. Episode 302, I hope this helps. Take care.