Can Salary Increases Cause an Entitlement Mindset for Employees?

Do Salary Increases Cause an Entitlement Mindset?

Most companies conduct their employee performance reviews once a year. We prefer to do reviews every six months.

6-month cycle

Why every six months? Because it forces us to recognize achievements and snuff out problems. And, we almost always issue raises (or cash bonuses) at the same time.

Conducting performance reviews every six months is painful for managers, but it’s better for each individual worker. The six-month cycle has helped us stay in touch with our employees’ needs and support employee retention.

Economic downturns

We have passed out raises in some economic downturns, but not during others. It depends on how I feel we’re doing as a company. However, I am a firm believer in this statement:

“If it’s within your power to give, give!”

So, yes, I have been guilty of giving out raises and cash bonuses when the economic climate meant that most business owners were not.

Fighting the entitlement mindset via open letter … educating my employees

Passing out raises every six months can cause a problem — people start to expect that bump in pay. So I educate my employees to discourage them from developing an entitlement mindset. For example, during the last economic downturn, I wrote the following to my employees in our intercompany newsletter:

On the level. We are at the end of a six-month performance review cycle, and I’m just going to level with you. A few (very few) raises were given out this time, and only in very specific/unique situations.

In some cases, we gave one-time cash bonuses instead of raises. However, not everyone received a bonus or a raise … especially the folks who are commissioned on their sales. We have never done performance reviews this way before, and here’s why we did it.

(Sorry in advance — I’m going to use Washington as my analogy.)

Analogy. Unlike government bureaucrats who get a paycheck no matter how well they perform, we have to earn every dollar we receive. We have to live within our means. We cannot spend what we don’t have. We can’t “print up” our own money. And whatever we borrow, we have to pay it back. (You get the point.)

So, we decided to take some of the cash that the companies have already earned and give out some bonuses instead of giving raises.

Receiving a bonus or raise in this economic environment is very unusual, but we’re doing it anyway. A bonus is awesome (even if it’s small). A raise is even more awesome. And I wish I could do more.

Improving! Right now, I’m just trying to “balance it all” with where our companies are. And let’s not forget, there are some folks sitting near you who received neither a bonus nor raise at this point.

I’m hopeful that we (as a group of companies) can increase our sales enough (despite all of the market forces against us), so that every person in our companies can continue to improve their personal financial situation as we press forward.

The decision. “Well Mike, why then did some people get a raise or bonus and not others?”

Without getting into tons of detail, I used two major factors in the decision-making process: (1) the person’s performance review score and (2) the “success” of the company or project they’re working on.

Time for a Mike-ism: I don’t want my kids to get a trophy for merely participating in sports. If their team was better than the other team, and they win … give them a trophy. If their team loses, no trophy should be awarded because no trophy was earned.

Showing up isn’t enough. Winning isn’t everything, but it does matter.

In our businesses, for example, winning matters a lot. Because if we don’t win, we can’t make payroll.

So for this performance review cycle, we have taken into account whether or not the companies and/or projects were “winning.” You are going to see more of this in the future. Handing out “participation trophies” may work for government bureaucrats, but it’s wrong. Being paid for performance is what should happen.

Confidentiality. Lastly, I shouldn’t need to mention this, but I’ll mention it anyway. Whether you received a bonus, a raise, or nothing at this time … it is nobody’s business but your own. This is to remain confidential, and it should not be discussed with your peers. Thanks in advance on that!

Your 3 takeaways

Did my letter help employees understand my decision about giving raises? I think so … I think you can minimize the “entitlement mindset” that can pollute your employees’ morale.

The bottom-line message here is …

  1. Openly communicate with your employees.
  2. Be a giver and give whenever you can.
  3. Make sure that you’re telling your employees the truth …

Always tell them truth — because they’ll know if you don’t!

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