Your Star Employee Just Asked for a Raise. Now What?

Here’s how to avoid the common pitfalls and self-sucker-punches of negotiating raises for your most strategically valuable employees.

Don’t play the credentials card.

Credentials have their place, and that place is at the front door, on the way in. Don’t use the lack of an MBA, or some other certification as justification for a lower increase. Unless the the certification is a legal or statutory requirement the only credential that really matters to your business is performance. Paperwork doesn’t move your business forward, human potency and potential does.

Bench the benchmarks

Managers, especially HR managers will often start with benchmarks and the “going market rate.” This is the worst place to start when it comes to your best people. If you’re going to outcompete the market you’re not going to do so with market average talent. Your job as the manager in the negotiation is to go into the discussion knowing if your employee is market average or market leading. Knowing when to use benchmarks and when to bench them is important. Your Star Employee knows they’re not average, and if you throw averages at them, the discussion becomes one of being undermined as well as underpaid. It’s a hard position to recover from.

What benefits are you not paying for?

Good employees do what’s expected of them. Your Star Employees give you more: they don’t necessarily work harder or longer but they deliver more leverage per hour of work by way of adjacent skills, superlative “soft skills” and ancillary areas of expertise. Something important to consider is the degree to which your organization is benefiting from expertise you’re getting from your Star Employee for free. If they leave, you either lose that skill or retain it at a premium — as either a fixed cost (salary) or a variable cost (consultant).

A better framework: consider the cost of replacement

Think about the Star Employee as an asset not a resource. Assets appreciate in value faster than resources do. Put simply, how much would it cost to replace the skills, expertise, domain knowledge and leverage your Star Employee brings? Think outside of their contractual role — it’s the “extra” that makes them extra-special.

Be sure to list and understand the full extent of the loss you’d experience with their departure, and when you do that, measure that loss in terms of whole people. You can’t hire half a person, and a half-time contract worker is going to cost you about the same.

When a significant raise is a saving:

If the cost of replacement is 1:1 use the benchmarks. If it’s a 2:1 replacement cost, a 20–40% increase is a saving. It’s unconventional, but when a company is unable to keep its best, most diversely talented individuals because the “manual” or the “computer” says no, they’ve started a descent into mediocrity.