Salary increment | Definition & guide to negotiating fairly

Consistent, fair, and streamlined promotion and compensation processes can make a big impact on employee engagement and turnover rates.

Because if your people don’t feel comfortable asking you for proper compensation, they’re more likely to quit and start a new job that offers a more competitive salary. In fact, in early 2022, “job-hoppers” (people who change jobs frequently) reportedly experienced an 8.7% growth* in year-by-year compensation compared to “job-holders.” 

So, to help you keep your employees feeling good and working with your organization in the long term, we’ll discuss:

• What a salary increment is
• How you can calculate salary increments
• How to negotiate a salary increment with an employee
  ‍

⭐Want to retain your top talent and boost engagement?

Leapsome empowers you to build trust and establish streamlined processes for a fair and consistent compensation experience. 

👉 Learn more

‍

* CNBC Make It, 2022
‍

What is a salary increment?

A salary increment is an increase in an employee’s annual pay in the form of a percentage. Individuals use this percentage as a reference point when negotiating pay increases, while employers utilize salary increments to give yearly raises more fairly and easily.

A salary increment system helps make the compensation process more consistent, standardized, and scalable for companies. For example, an annual salary increase of 3% across an entire organization is much easier to calculate and implement than sporadic salary increases of different amounts.
‍

How to calculate a salary increment  

To calculate a salary increment for an individual employee, you need to know the raise percentage you want to give them and what the person currently earns. 

Then, follow the formula below:

New annual salary = (base salary x decimal value of increment) + base salary

For example, let’s say you’re calculating a 15% increase on US$30,000:

1. The decimal value of 15%, which is 15/100, is 0.15
2. The previous salary is US$30,000 
3. Multiply US$30,000 by 0.15 — you’ll get US$4,500

Add US$4,500 to the old salary of US$30,000 — the new annual salary will be US$34,500

‍

‍

How to negotiate a salary increment with your employee

Building trust with your employees and taking a proactive approach to compensation plans demands effort and planning — we’ve put together a list of five steps to help get you there.
‍

1. Keep tabs on employees who might have a salary increment on the horizon

Employees shouldn’t always be expected to request raises or promotions first. Instead, companies should proactively initiate conversations about salary increments and raises.

Looking out for workers who might soon be eligible for a promotion or salary increase allows you to compensate them fairly before they even approach you.  

You can accomplish this by:

1. Creating a sustainable feedback culture: A sustainable culture of continuous feedback helps managers keep their fingers on the pulse of their companies and effectively monitor employee engagement and performance. 

2. Analyzing performance reviews: If done well, performance reviews can tell you a lot about your people, from skill profiles to goal completions to shifts in performance. Use this data to guide you in your compensation planning.

3. Measuring your company’s employee Net Promoter Score: A low eNPS score indicates that most of your workforce feels negatively about their roles — which could be due to a lack of fair and competent compensation. If this is your case, the step below will help you gain more clarity.

4. Conducting employee engagement surveys and topic-specific pulse surveys: These surveys help you understand your employees’ experiences and take data-driven actions to tackle issues from salary dissatisfaction to insufficient manager support.
   ‍

2. Establish a specific time to discuss the proposed salary increment 

Carve out some time to sit down with your employee and discuss their proposed raise. This action tells your people that they have your undivided attention and respect.

‍ Career development talks and 1:1 meetings are perfect for starting these conversations. In fact, the purpose of 1:1 meetings is to create a space for you and your report to share feedback, identify roadblocks, and approach challenges with a problem-solving mindset.
‍

💡 If you ever need a 1:1 meeting template for more intentional sessions, we’ve got you covered — and it’s free to download!

‍

3. Listen to your team member

Your report will most likely attend your meeting equipped with previous market research on current salaries for their role, performance review results, notable accomplishments, and maybe even a list of out-of-scope responsibilities and tasks they’ve been carrying out. 

Thank your team member for setting aside the time for the meeting, and let them know you’re open to the discussion. Then, be sure to listen mindfully to what they’ve got to say and follow up with relevant questions about where and how they add value that warrants a salary increment.
‍

4. Have an open, collaborative conversation where both parties contribute equally

When done well, 1:1s foster empathetic work relationships, encourage open conversations, and make employees feel valued. So take advantage of the nature of these meetings and create a space where you can both contribute equally. 

While the employee shares their achievements, growth, and areas where they may need support, you can contribute by asking them about their goals for the future.

Begin by asking questions like:

1. “What are your professional goals?” — This gives you a better understanding of your report’s objectives in the medium- to long-term.
2. “Where do you see yourself in a year?” — The answer to this question lets you establish a personalized learning and development path to help your employees achieve their goals. 
3. “What are your expectations regarding your potential salary increment?” — Both you and your report need to set realistic expectations to avoid surprises.
4. “What are the reasons behind your request for a pay rise?” — Has your employee received a competing offer? Is a raise the only thing that would keep them from quitting? Refusing a staff member’s request without understanding their reasons can cause unnecessary conflict.
   ‍

5. Come to an agreement 

Finally, use what you’ve learned from your conversations to come to an agreement that’s fair to the employee and aligned with your company’s compensation strategy. Remember, a great compensation plan ensures that employees are paid fairly and factors in industry pay benchmarks, benefits, and company budgets. 

If both parties can’t agree on a salary increment, it’s crucial to establish actionable next steps.

Explain the reasoning behind your decision and help your report understand what they can do to get to a place where a salary increment would be possible. Managers should ensure employees leave these meetings with a clear understanding of what they need to do next to achieve their goals.

Create a personalized performance development plan and put performance and development goals in place based on the employee’s outlook. Ensure these goals are:

1. Actionable and clear — Team members should know what steps they need to take to achieve results
2. Time-constrained — Open-ended objectives make it difficult for employees to measure progress or stay focused on their goals
3. Achievable — An effective objective should be ambitious yet realistic to both challenge and motivate employees
4. Measurable — Objectives should be measurable, so members know if they’re headed in the right direction and how far they still have to push

Learn more about salaries & compensation

Scalable processes and workflows that enable leadership to reward employees fairly have the power to drive engagement, increase productivity, and reduce turnover. However, many organizations struggle to establish streamlined compensation management strategies. 

That’s why, in this article, we shared five important tips that can help you deal with salary increments while fostering a rich employee experience. Finally, remember to stay open in your communications and treat salary increment negotiations as opportunities for collaboration and building trust.
‍

⭐Want to retain your top talent and boost engagement?

Leapsome empowers you to build trust and establish streamlined processes for a fair and consistent compensation experience. 

👉 Book a demo

‍

FAQs about salary increments

‍

Are bonuses the same as salary increments?

No, bonuses and salary increments are not the same. An employer can choose to grant a bonus to retain employees, recognize exceptional performance, or reward people for additional responsibilities they’ve taken on. This kind of additional compensation is a one-time payment. 

Salary increments, on the other hand, represent a permanent boost in the compensation of salaried employees.