Ask Lighthouse: Promotion without a Raise? What to Do When Money is an Issue

What do you do when one of your team members is feeling undercompensated but giving them a pay increase is out of your hands? Can you give someone a promotion without a raise and how should you do that?

Welcome to the 9th edition of “Ask Lighthouse”, our weekly format that answers your questions about leadership and management. Each week, Jason Evanish, the CEO and founder of Lighthouse, and other leaders will share their advice for overcoming your biggest challenges based on their experience and lessons learned helping others.

The goal is to provide you with the nuance and detail that you can’t find in our long-form posts that try to be more generally applicable. 

We’ll also be using your questions to bring you more relevant content in the future and keep improving our Lighthouse software

Want to have your biggest, burning management question answered next? You can send in your questions for next week here: Submit Your Questions for Next Week Here

promotion without  a raise

This Week’s Ask Lighthouse: What to do when someone feels undercompensated – but a raise is out of your hands

When someone on your team asks for a raise, knowing how to react can be a big challenge. You have only a small amount of time to respond, but what you say can seriously affect their morale or get them to consider leaving. 

In today’s post, we’ll discuss how you can deal with that situation, even if you don’t have the budget to increase their pay.

Question: “What should I do if a team member shares that they are feeling under-appreciated from a compensation perspective. The kicker is, as their manager I don’t have the direct power to provide a raise.” 

In your particular situation, knowing that giving a raise is out of your hands makes things very difficult. The easy answer (assuming they’re deserving) is not an option. 

So what does that leave you with?

Just saying “no” and stopping the discussion there is unlikely to end well. The same goes for lying to them and saying it could happen in a few months, knowing full well that it won’t.

Instead, you need to redirect the conversation toward what’s really bothering them, because chances are, this is about more than money. Then you can fix that, which will have a better impact than money would alone anyways. 

A study by Angus Deaton, a Nobel Prize-winning economist, and psychologist Daniel Kahneman found that money only goes so far when motivating people. In their study, they noted:

“Emotional well-being also rises with income, but there is no further progress beyond an annual income of ~$75,000.”

What that means is that there’s likely something else bothering your team member you need to address. And that something could (partially or unknowingly) be your fault. So let’s talk about what you can do: 

1. Get to the root cause and find out what’s really bothering them

A survey by Michelle McQuaid and TellYourBoss.com has shown that 65% of employees would prefer a new boss to a pay raise. That’s no surprise given how many times we’ve heard that people leave managers, not companies.

Whatever their issue, the best way to figure out the solution is to ask them. If you don’t have time to do that right when they ask for a raise, use your 1:1s with them. They are the perfect time to have open conversations about what makes them think they’re undercompensated.

And if you don’t know where to start, we’ve prepared these questions to help you uncover what’s frustrating them (and 100 + more you can find here):

  • What’s your least favorite part about your job right now?
  • What’s one thing we could do to improve how our team works?
  • Do you feel over-worked, under-worked, or just the right workload?
  • Are there any aspects of our culture you wish you could change?
  • Is there a situation you’d like my help with?

Ask them questions similar to those above, then really listen and ask follow-up questions.

To make sure you really understand their issues, use active listening skills to pick up and process key information.

As the image above shows, there are three levels of active listening:

  • Repeating their message using their exact words
  • Processing the message using similar words
  • Rephrasing their message using your own words to confirm you understand it.

The third and final level requires rendering your team members’ message they said in your own words and them agreeing.

The point of this approach is to create clarity. Not do you get a chance to ask them about a topic and drill deeper, but you’re also confirming the most important ideas from them.

Active listening skills can save you a lot of headaches in the long term. Rather than finding out you didn’t get their message days or weeks later, you can confirm you did in that very moment. 

In case you want more ways to uncover how your team is truly feeling, try these posts:

2. Grow them and give them new projects to work on

Whether it’s budget limitations or the way raises are handled at your company, you sometimes have to deal with being unable to increase their financial compensation regardless of the quality of their work. 

However, what you can do instead is focus on providing them with every form of career growth you can. 

Multiple studies have shown growth is the most important perk people want at work, even more than money. It has been confirmed by PwC, Mary Meeker’s Internet Trend Report, Linkedin’s Workplace Learning Report, and many other sources.

There are many ways to grow your people without breaking the bank:

  • Introduce them to a mentor further along in a similar career (we’ve written about how to find a mentor for your team here)
  • Buy them a book or course to learn a new skill that applies to their current job (here are suggestions of great books to get them if they’d like to develop as leaders)
  • Empower them to take on a project to fix an issue important to them, and others.

The last option is particularly great in situations where they’re asking for a raise but you’re not in a position to provide one. Not only are you then providing them a growth opportunity, but you’re helping them address the root cause of their frustrations. 

Especially in this situation, new responsibilities can provide some very important benefits for both you and them:

  • You can get help on tasks that were previously lacking resources.
  • You can make a stronger case for giving your team member a raise when the right time comes because now they’re even more valuable to you and the company..
  • They are focused on the new challenge, rather than constantly thinking about the raise
  • Even if they leave, they have a new, beneficial bullet point for their resume or talking point in their interviews.

Your ability to grow your people and refresh their responsibilities depends only on your own creativity and willingness to try new ideas. 

When someone asks you for a raise, use growth and engaging projects to help them both in the short- and long-term. 

And if you need more suggestions on how to support their growth, try one of the following posts:

3. Be more transparent

Are you transparent about your company’s financial situation and how you give raises?

If you’re struggling and are frank about it, your employee looking for more money will be more willing to wait for a raise. 

A report from Beqom has shown a lack of pay transparency is #4 among the reasons why an employee would consider leaving for another company.

When an organization is transparent with their employees, they tend to be more successful in several areas because: 

A lack of transparency often leads to a toxic culture that causes people to leave. Yelp literally spent more resources on perks such as in-office snacks than some of their lower level employees’ wages, causing outrage among their employees and later the public, due to an open letter to the CEO.

Realize that your employees are watching everything you and your company does. If the CEO and senior leaders are seen spending money freely on themselves, or the office is quite opulent, then it’s a lot harder to tell your staff there isn’t any money for fair compensation for them.

Your hands may be tied even if that is the case, but that hypocrisy will be a point of friction with your team then that you’ll have to figure out how to navigate. It leaves you only a few options:

  1. Make it clear when raises are considered so that if it’s once a year, they know when that will happen. Also let them know what skills are rewarded, so that no one is left feeling misled at review time that they were not given a chance to achieve what would get them a raise.
  2. Be open about the financial situation of the team and the constraints of the role; I had a friend in Customer Success hit a hard ceiling on his compensation, which led to a great conversation about him moving to sales, where he crushed it and subsequently tripled his salary.
  3. Be transparent about your limitations, and pay attention to what your team does. If a few people leave, you may be able to use that to justify more budget for your team to your boss when nothing else seems to work. 

Whatever your company’s attitude toward spending money, keep all this in mind as you have discussions about raises. Your employees certainly will.

If the culture of your company is creating challenges for you and your team, consider reading these posts: 

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What are your biggest leadership challenges right now?  Let us know by submitting your question for next week here. 

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