It’s Time to Raise Pay: An Employer’s Guide to Calculating Salary Increases

August 30, 2023
By Sheri Pepper

If you’re looking for guidance on how to calculate a salary increase, the most important advice is to approach the task with care. The correlation between compensation and employee retention cannot be understated.


Consider using a standardized, repeatable methodology based on objective criteria and market data that ensures fairness, transparency, and equity while also supporting business goals.


This article provides an overview of how to figure out a salary percentage increase so you’ll be confident with the end results, whether you’re giving a raise to one person or an entire team. 


Boosting Compensation: Getting Started

  1. Do your research. Thoroughly review the salary trends and benchmarks of your industry and geographic location. This information provides market rates for different positions and ensures you’re paying competitive rates. Our annual salary guide provides competitive compensation data across industries.

  2. Assess each employee. Consider individual performance when determining salary increases. Evaluate employees based on their achievements, contributions, and overall performance during the review period. Performance metrics such as goal attainment, quality of work, and skills development can be valuable in this process.

  3. Align with the company’s financial outlook. Take into account your organization’s financial constraints and budgetary considerations. Determine the available resources for salary increases and ensure they reflect the company’s financial strategy.

  4. Aim for equity. Ensure your salary increase decisions are fair and consistent across the organization. Avoid biases or favoritism and establish clear and transparent criteria for increases.
Check out Nelson Connects' annual salary guide for competitive compensation data across industries.


When Is the Best Time to Give Employees a Raise?


The appropriate time to increase employees’ salaries depends on various factors, including the organization’s policies, budget constraints, performance evaluation cycles, and market conditions. Following are a few common scenarios when you might consider salary increases:

  1. Annual performance review cycle: Many organizations conduct annual performance reviews that assess employees’ achievements, contributions, and overall performance. These types of pay adjustments are often referred to as merit increases.

  2. Anniversary date: Some companies provide salary increases on the anniversary of an employee’s hire date. This approach ensures that each employee receives a raise at least once a year, regardless of when their performance reviews fall.

  3. Promotions or role changes: When an employee takes on additional responsibilities, is promoted, or transitions to a new role with higher demands, it’s appropriate to consider a salary increase to reflect their increased workload and value to the organization.

  4. Market adjustment: If significant changes occur in the job market, such as increased demand for certain skills or inflation, it might be necessary to adjust salaries to remain competitive and attract and retain talent.

  5. Exceptional performance: If an employee consistently exceeds expectations, makes substantial contributions, or goes above and beyond their role, it might be appropriate to provide a salary increase outside of the regular cycle.

  6. Company performance: When a company experiences strong financial performance and profitability, it may consider passing on some of the success to its employees through salary increases or bonuses.

  7. Negotiated agreements: Salary increases can be part of negotiated agreements, such as labor union contracts or individual employment contracts.

  8. Employee requests: If employees can demonstrate a compelling reason for a salary increase, such as taking on new responsibilities or achieving certain performance milestones, it’s worth considering their request.

  9. Cost-of-living adjustments: In areas with high inflation rates, employers might consider cost-of-living adjustments (COLAs) to help employees maintain their purchasing power.

  10. Retaining high-value employees: If there’s a risk of losing a valuable employee to a competitor or other opportunities due to salary disparities, it might be wise to offer a raise to retain them.

Keep Your Team Informed


Because employee compensation adjustments can vary year to year or as business outcomes fluctuate, it’s important to provide employees with clear and transparent communication about pay policies and the criteria used to determine raises.


It’s also critical to ensure that salary adjustments are fair, consistent, and aligned both with the employee’s contributions and the company’s financial health.


When appropriately calculated and clearly communicated, salary increases have the power to boost employee retention, influence productivity, and strengthen company culture.


If you want to discuss your compensation strategy or hiring options, contact our employment experts today. Our purpose is your success.


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