4 reasons giving your employees a raise will hurt your business

12th Apr 2017
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We've all read several articles on why giving your employees the occasional raise will benefit your business. While it is true that rewarding your employees with a hike in their salary will let them know that their contribution to your company is valued and recognised, a pay raise also has its downsides. In your attempt to reduce employee turnover, make sure that the raise you're providing doesn't hurt your business. Here are a few things you should consider before granting your staff an increase in their salaries:

Image : shutterstock

Image : shutterstock

The additional expense of a pay raise will bog down your business

As an entrepreneur, your primary responsibility is to decrease overheads. When times are good, dishing out a hike in salaries might not seem like a burden. However, a number of external factors like a sluggish economy and a competitor taking away your main client can impair your cash flow. In order to meet the commitment of a pay raise, your company might need to take a loan or hike the prices of your products, and this can lead to unforeseen long-term problems.

Money alone doesn't breed happiness

Talk to any millennial and they will tell you that they would without a doubt choose a job that offers a flexible work schedule over a bigger paycheque. This is because the definition of happiness is slowly evolving, and while one cannot ignore the importance of money altogether, there are other factors that are gradually replacing the significance of a bigger salary. Instead of a pay raise, give your staff access to a wellness program or make your company socially responsible. Initiatives like these are more likely to breed happiness within your employees.

Productivity suffers

When the only motivation that your employees receive is a hefty paycheque, they are bound to focus more on the numbers in their bank and less on the quality of work they deliver. Not only this, your employees might begin to feel like they are pitted against one another in the race of ‘who's getting the bigger paycheque?’. All of this will eventually lead to a decrease in productivity as they will not feel the need to put in their best when they've already been rewarded for average performances.

It may estrange your customers

In order to fulfil the promise you gave your employees about giving them a raise, you'll have to make arrangements for the money from somewhere. Taking a loan isn't the brightest option and increasing the price of your products and services might seem like the only choice. However, doing this may alienate a few of your customers who might view the increase in prices as unnecessary and uncalled for. This will affect your overall business as you'll lose out on the buyers you have accumulated over the years.

Before granting a raise to your employees, ensure whether you can afford the additional expense. If not, come up with innovate and inexpensive ways of motivating them for the time-being.

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