The Best Practices for Pay Raises and Labor Rate Increases


In a job market where employees have more power than employers, it’s vital for your dealership to have a competitive edge when it comes to hiring and retaining workers. As is often the case, this boils down to dollars and cents. Passion and comfort in a workplace are important, but at the end of the day, those don’t pay the bills and workers are quick to look elsewhere if they don’t feel their work is being adequately compensated.

This translates into ensuring that you offer salaries that reflect industry standards and use monetary incentives judiciously. While the former typically involves simply researching what is currently the accepted salary for different positions within your dealership, the latter takes a little more finesse. Poorly executed bonuses and raises can lead to employees feeling resentment toward one another or you, and lead to wage imbalances that send some of your top performers packing.raises

Here a few points to take into consideration when handing out extras:

1. Review and Update Salary Standards Regularly

Industry standards change over time, usually by increasing. This leads to wage compression. Consequently, an employee who came into your dealership seven years ago might make the same amount as an employee hired this year. If you don’t frequently adjust senior salaries to match standards, you’ll find that raises don’t quite satisfy some, and could potentially lead to a younger, less-experienced employee making more than the rest even after raises are applied. Needless to say, this can cause unrest among your team. So in order for a bonus or raise to mean anything, it is important to make sure salaries do.

2. If it Can’t Be Significant, Make it Meaningful

A good rule of thumb is to give a raise whenever it is economically feasible for you to do so. Regular monetary reinforcement is a strong motivator and can assist in retention. However, studies have shown that too small a raise percentage can have an inverse effect. How do you strike a balance if you can’t give too much? Add non-monetary incentives to make the raise more meaningful. Include sincere words of praise and affirmation when giving the raise and, if possible, consider adding privileges as part of the package, such as raisesa preferred parking spot, or choice of some sort within the company.

3. Have a System and Be Transparent

On that note, it is important to be as transparent as possible when giving raises. This means you should be able to communicate to any employee who wants to know exactly how raises are calculated and doled out, along with why they may be more or less generous at a given time.

This means you’ll need to come up with a comprehensive plan that helps you determine who deserves a bonus and how much it should be. The work you put into such a plan is worthwhile since it not only makes the task of deciding how to award raises much easier for you, it also demystifies the process, motivating employees since they now know how to achieve the results they desire.