The annual compensation review is a pivotal moment in the year. It’s your chance to reassess salaries, realign them with market standards, and ensure your team’s compensation is fair. It’s also an opportunity to recognise those employees who have earned a raise.
But what happens when reduced budgets and tough market conditions mean you simply don’t have the funds to hand out pay increases? In this article, we’ll explore seven creative alternatives to help you show appreciation when a pay bump isn’t on the table.
What not to do if you can’t afford a pay rise
When budgets are tight, some companies opt for what’s known as ‘dry promotions’. This is when an employee is given an upgraded job title and new responsibilities without the accompanying salary increase.
While this might seem like a cost-effective solution, it’s not a good way of showing employees they’re valued. If anything, it sends the opposite message, since employees are expected to do more for the same pay.
Dry promotions can have a serious impact on employee morale, and damage your employer brand too. Plus, when you give an employee a shiny new job title, you’re effectively increasing their market value. If you don’t adjust their salary at the same time, there’s a good chance they’ll be snapped up by another company that recognises their worth.
7 ways of rewarding employees without a pay increase
So, if dry promotions aren’t the answer, what is? Below, we’ll discuss seven creative ways to show appreciation for your employees’ hard work, even when a salary increase isn’t possible.
1. Offer a one-time bonus
If you can’t afford a permanent salary bump, consider offering a one-off bonus to those employees who deserve one. This can be an effective way of boosting morale and showing employees that you value them without committing to a long-term increase. Bonuses can be structured in various ways. For example, you could award individual bonuses for personal achievements or team bonuses to celebrate collective successes. Over the past few years, we’ve also seen some companies providing company-wide cost-of-living bonuses to help employees meet rising expenses.
2. Provide additional leave
Extra paid time off work can be a powerful reward that doesn’t directly impact your budget. This might simply mean adding additional days to each employee’s PTO balance, or providing unique perks like birthday days off or no-notice mental health days that employees can take whenever they need to. Another option is to implement company-wide days or half-days off. For example, some companies offer “half-day Fridays” during the summer. This is especially effective since everyone is off at the same time, meaning there’s no pressure to stay connected.
3. Dial up your benefits offering
Salary is just one part of an employee’s compensation package — and providing the right benefits could help you to offset a lower salary. While benefits do come at a cost, they’re typically a more budget-friendly way of rewarding employees than raising salaries, since you can benefit from bulk pricing. In some countries, certain benefits also come with tax advantages.
Some of the employee benefits you could provide (or increase) include:
- Healthcare benefits, including vision and dental
- Employee discounts on your company products
- Employee assistance programs (EAPs)
- Retirement accounts or additional pension contributions
- Gift cards for work anniversaries or milestones
- Transportation stipends to help with commuting costs
Remember that employee preferences vary widely. Tailoring your benefits as much as possible can help you to maintain employee satisfaction, even when salary increases aren’t on the cards.
4. Provide learning and development opportunities
Many employees value the opportunity to learn new skills and advance in their careers. Offering different options in this area can be a powerful way to reward your team. For example, you could consider:
- Providing access to online and in-person training courses
- Paying for employees to attend conferences and seminars
- Giving employees time for personal development during work hours
For ambitious employees, consider offering personalised, one-on-one coaching or mentoring sessions with senior staff. This can help employees to improve their skills and ultimately move to the next stage of their career.
5. Organise events and team days
Hosting special events or activities is another great way to show employees that they’re valued while also boosting morale and engagement. Consider planning a biannual office party sponsored by the company to celebrate your team and thank them for their hard work. Other ideas include team away days, team-building activities and happy hours — or anything you can think of to encourage connection and engagement.
6. Explore flexible working options
Flexible work arrangements can help your team to balance their professional and personal lives more effectively — which is extremely valuable to today’s employees. That might mean allowing employees to work fully or partially from home, or implementing flexible start and finish times. If you want to take things a step further, consider trialling compressed work hours or a four-day week.
7. Think about employee equity
Offering equity or stock options is a powerful way to reward employees without increasing salaries. With an employee equity scheme, employees are granted (or have the option to buy) shares in the company, which increase in value as the company grows. This gives employees a personal stake in the business, which could make them more motivated to contribute to its growth.
Finding the right reward for each employee
Every employee has unique motivations and preferences. While some are primarily driven by pay, others might value professional development, being challenged at work or improving their work-life balance. The key to effectively rewarding your employees is understanding what each individual values most.
Of course, you may not be able to provide a fully personalised compensation package, but providing some level of choice can go a long way. For example, offering flexibility in work location, hours, additional time off and equity options allows employees to tailor your benefits to their own needs and interests.
The dangers of withholding raises
You won’t always be able to give a raise to every employee who deserves one. But freezing salaries indefinitely isn’t a good idea either. After all, while an employee may not walk out straight away if they don’t get a raise, it will still have an impact on morale if they’re denied increases year after year. Over time, employees who know they’re worth more than you’re paying will simply go elsewhere — which means you could be looking at a big retention problem.
The solutions we’ve talked about in this article can help to show employees that they’re valued, even if you can’t afford a raise right now. But the reality is that many of them are temporary fixes. If you really can’t offer a salary increase this year, consider making a plan for raising pay in the future.
This plan should be as detailed as possible, and should outline the KPIs or targets you’ll need to meet as a company in order to hand out raises to those who deserve them. Being open and transparent about your situation (and what you’re doing to resolve it) reassures employees that you truly care about paying them fairly — even if a raise isn’t possible at the moment.
