With national income per head falling and the cost of living rising, be prepared for staff to call for a pay increase. Here’s how

There has been much debate recently on the fairness of workplace salaries. According to the Office for National Statistics (ONS), national income per head, considering inflation, has fallen more than 13% since the start of 2008. However a survey by Income Data Services has found the pay of top business executives has risen 27% in the last year alone.

While the living wage has just been increased to £7.45 per hour across the UK (or £8.55 per hour in London), the UK minimum wage is still considerably less, at £6.19/hour for those over 21. This disparity means there is increasing pressure on companies to raise their pay rates and many staff will be wondering if they can ask their employer for a bit more money.

Small businesses usually have more flexible pay structures than larger organisations, meaning there is more scope for salary negotiation. However discussions about pay can often be hard to manage sensitively. Here’s how you could deal with the situation if it arises:

1 Anticipate pay rise requests

First of all, don’t panic. It is not necessarily a bad thing for an employee to ask for a pay rise – if they are a valued member of staff, it gives you a chance to work out a fair increase rather than have them leave for a better pay-packet elsewhere.

Try to formalise the request wherever possible. This can be done by making sure that the asked-for increase becomes a subject for their official performance or pay review, which can be brought forward if necessary. This is likely to reduce the amount of ‘ad hoc’ pay rise requests received and enables employers to thoroughly assess an employee’s achievements and skills in relation to their salary.

It is vital to give detailed explanations as to why employee salaries are or aren’t increased. A decision supported with rational reasons is less likely to be queried and will give the employee areas to work on so they can aim for an increase in the future.

2 Deal with a pay increase request constructively

It is essential to handle salary negotiation positively and constructively to minimise upset if it isn’t agreed. Regardless of your preliminary thoughts on the employee in question, you must listen to and examine the reasons they think their request is justified. If you are not able to facilitate a pay rise at the time, then the most positive way to approach the situation is to give them clear performance objectives and link this to a pay rise in the future, providing a realistic timeline in which they can achieve it.

3 Introduce a formal salary review process

Every boss worries that one request will turn into a flood. To prevent this, introduce robust salary reviews by asking all employees and their colleagues to fill out an evaluation form prior to the actual review and link this to their job role and performance objectives. This helps to remove any unpleasant surprises from the review process and encourages employees to focus on what they have really achieved. It also gives you proof-points for why they should or shouldn’t receive a pay rise and evidence to show senior management when fighting the employee’s corner.

4 Consider other benefits and rewards in place of pay rises

In these austere times, if you simply can’t afford to offer pay rises it could be worth investigating more cost-effective rewards and benefits to maintain staff morale; for example, offering flexible working, training and development, staff events or ‘employee of the month’ gifts can all work to make a happier workforce during difficult times.

Michael Gentle is head of consumer marketing for the UK and Ireland at job site Monster.