Cash Flow CFO



Blog post

Smart Advice for Salary Increases

You LOVE your team!

They’re the heart of your business, and you want to show them how much you appreciate their hard work and dedication. Salary increases and well-deserved bonuses speak volumes about how much you value your employees, but many business owners have a hard time figuring out when and how (and how much!) to offer.

Salary increases depend on 3 major factors:

  • Your budget
  • Your employees’ level of skill, expertise, and experience
  • Cost of living

The Cash Flow CFO wants to help you keep your team happy, so we’re breaking down the best practices for salary increases category by category:

  • Budget

    Inflation is everywhere and that’s driving up the prices of raw materials, shipping, and countless other necessities that impact your bottom line. Before you can decide on raises, you’ve got to take a hard look at how much you can REALLY afford to pay your team.
    This may not be the best year for company-wide salary increases, and it’s important to be honest with your team about what you can afford. If you aren’t able to pay them as much as you’d hoped, consider offering performance-based bonuses throughout the year to enhance their earnings without putting your business at risk.

  • Skill, Expertise and Experience

    Pay raises should be fair, equal, and consistent, but that doesn’t mean everyone earns the same amount.
    Your team’s salary is based on their skills, expertise, and experience. A veteran team member is obviously going to earn more than a newbie, and their salary increase will have a higher dollar value as well.

    Be clear about your criteria for pay raises. Many companies choose annual percentage-based pay raises (generally around 3.2% of their annual salary) to keep things consistent and fair. Others base raises on preset performance goals. When an employee hits a milestone, they’re rewarded with a higher salary.

  • Cost of Living

    Higher prices on EVERYTHING means your team’s paychecks don’t stretch as far as they used to. If you’re factoring the cost of living into pay raises, it’s smart to start with the Consumer Price Index (CPI) for your area.

If the cost of goods and services in your area have risen dramatically, it’s great to increase the percentage of pay raises if you’re able to, but if that’s not in the budget, consider adding regular bonuses to offset the higher cost of living.