There’s a lot to consider when you’re establishing what to pay your workforce, but in today’s competitive market, your ability to hire and retain top performers is tied closely to your salary levels. Wages also have an impact on job satisfaction, productivity and company success, which begs the question: Is it time for you to raise salaries?

Most workers today have more choices than ever. Losing top talent, especially to your competition, is a risk very few businesses can afford. Consider the impact of institutional knowledge walking out the door, the time and expense of recruiting and interviewing candidates, and the burden of training.

In short, management needs to be prepared to talk money. If you prepare for the inevitable compensation questions in advance, you’re much more likely to find a mutually agreeable answer. And, yes, you may need to raise salaries proactively.

WHEN should you raise salaries?

The best time to give a raise may be now. One reason employees may expect a raise is that other firms like yours are offering more money. If it’s been a while since you’ve benchmarked wages, it’s time to do your homework. Use resources like the Robert Half Salary Guides to get the latest information on salary ranges for hundreds of job titles. If your compensation packages are below average for your industry, city or company size, you’ll need to be better about handing out raises. After all, keeping your salaries competitive gives your employees an incentive to stay on board and helps you find new talent when you need it.

Next, let’s tackle the reasons employees might warrant a pay bump.

WHY might your employees deserve raises?

Some companies give raises annually and others are less regular, handing them out based on individual performance. Either way, raises show you value your staff members and their contributions to the company.

Do any of these descriptions match the performance you’re seeing in someone you supervise? If so, you might want raise salaries now, rather than have to scramble later to match a better offer.

• Exceeds expectations
• Takes on responsibilities outside the job description
• Takes initiative for improvement
• Focuses on team success using top-notch specialized skills
• Delivers quantifiable results to help the company be more profitable

Finally, let’s look at six steps that show you how to approach the competitive salary question and how to communicate your decision to raise salaries.

HOW can you prepare to give a pay raise?

1. Analyze your budgets. You’ve researched local salaries. Now it’s time to look over your current line items and see what monies can be moved toward salaries. It also wouldn’t hurt to have a robust fund for merit awards, retention bonuses and employee recognition gift cards. Make employees feel wanted and appreciated.
2. Prepare for performance evaluations. Whether you conduct a formal review once or several times a year, employees will typically bring up the issue of salaries and promotions during these meetings. As part of your preparation, have available each worker’s current salary and how that compares with local averages — just in case the issue of money is brought up. Also compare official job descriptions with current responsibilities. If an employee has taken on more tasks since the last review, a raise may be overdue.
3. Examine your attitude. According to our research on happiness at work, the top reason workers stay at a job or leave it has to do with their relationship with management, especially their direct supervisor. So rather than getting irritated by employees’ requests for more money, look at it as a gift. They’re giving you important information about job satisfaction — as well as the way to keep them onboard. Don’t squander this opportunity. It may be too late to woo them with more money when they hand in their resignation, as counteroffers seldom work for either party.
4. Be proactive with salary conversations. There’s no need to wait for employees to ask before giving them extra money. In fact, most people who feel they deserve a raise won’t even ask for one. It's also more meaningful when you increase salaries without being prompted. This is especially the case for your most skilled and productive workers — those who would be most difficult to replace.
5. Avoid saying no. No one likes rejection. Whenever possible, give valuable employees what they ask for, if doing so won’t wreak havoc with your budget. Understandably, you may not be able to grant every request for more money. In those cases, as part of your planning, brainstorm alternatives to traditional salary increases, such as flextime, bonuses, more vacation days or professional development. Besides salary, today’s professionals value benefits that help them achieve better work-life balance.
6. Know the best way to communicate a raise. The most effective way to do this is to tell employees why they are getting the raise so they feel recognized and rewarded. Don’t bother making a comparison of their performance or pay raise with that of other employees. But do help them to understand how compensation decisions are made at your company.

Good workers deserve good pay. During times of low unemployment, a competitive salary is critical for keeping workers happy and your business humming along. Now is the time to evaluate each employee’s compensation package and, if it falls short, to shore it up.