Questions My Business Owner Clients Ask Me: How Do I handle higher wages?

When I hire a new employee at higher wages, what do I do for my existing team?

YES, your employees are talking about what they get paid and YES, they will realize that there’s a discrepancy between their paychecks.  This is especially difficult when you have great, long-term employees that are not being paid market rates.

It’s time to bite the bullet. Inflation and a tight labor market are pushing up salaries – your margins will pay the price in the short run because you will have to increase wages for all your employees – not necessarily immediately, and not necessarily at the same rate of increase.

But you must do the following things:

  • Have a conversation with each employee about their performance and about their future wage increase.
  • Give them specific reasons why you are raising them to market (or not).
  • Give them the time frame for this to happen.
  • Complete an analysis of what the pay raises will cost your company.  What will the margin compression look like?  Hopefully you will stay profitable.
  • Increase the price of your product or service at least enough to compensate for the salary increases. Most companies are facing the same challenges and will understand as they are probably expecting it (and worried about having to do the same thing)!

As a business owner, think about the companies you buy from that have increased their prices based on “inflation.”  How was the message delivered?  Were you surprised or expecting it?  Use the best of these examples to reach out to your customers. 

Do not wait until you have put all the pay hikes in place – sooner is better!  Hopefully, your price increase will more than offset the wage increase…

Please let me know your thoughts!  Do you agree with my analysis?  Are these the steps you followed?  What did you do instead?  How did it work out? 

Want to talk further about this subject?

Contact me and book a time or consider joining a BOMBA Mastermind where you will get the tools to complete the sensitivity analysis on the margin compression and you can talk confidentially to a peer group who could give you constructive feedback on your pricing.