How to Allocate Raises

Allocating raises based on performance can be challenging. Some companies give an across-the-board raise of a small percentage, with the potential for an additional merit raise when warranted, while other companies allocate raises based solely on performance. Raises help motivate your employees and grow company loyalty, but it's important to allocate raise funds fairly.


  1. Before allocating raises, you must determine your budget for the following year. If you give the same cost-of-living raises to all employees, factor that cost into your budget. A 2-percent across-the-board raise may be a bigger chunk of your budget that you think -- staff members who make $100,000 a year get more from a 2-percent raise than one making $30,000. If the percentage is taking up too much of your budget and keeping you from allocating merit raises, consider using a flat base raise for everyone, such as $1,000.

Organization Chart

  1. If you don't have a current organization flow chart showing who your employees report to, update your chart before allocating raises. This helps you see who is director level, management level or basic employee, keeping you from allocating an unfair amount to one person -- for example, raising an employee's pay higher than that of her manager.

Performance Reviews

  1. Many performance reviews use a two-fold system where the employee reviews herself and the manager reviews the employee using the same criteria. They then meet to compare the reviews and discuss areas where the employee excelled as well as areas needing improvement. A point-based system makes it easier for you to allocate raises -- a certain number of points awarded by the manager can equal a certain pay raise. However, standardized performance reviews don't always tell the whole story, so ask managers to provide you with descriptions of employees who have consistently gone above and beyond to exceed the requirements of their job duties. These people might deserve a higher raise than is reflected by their point scores. For example, one employee might be 10 minutes late nearly every day, lowering his reliability score, but he also might work late every night or come in on weekends to make sure deadlines are met. The score doesn't reflect his true work ethic.

Specialized Jobs

  1. If some of your employees have jobs that require specialized training and would be hard to replace, such as programmers for a custom computer program, allocate a higher raise percentage for them. People who are important to the company's success need to know they are appreciated. Although you may have a spectacular administrative assistant, it's easier to find a competent assistant than it is to find someone with extensive knowledge of a specialized computer programming language. Especially if you have a tight budget when allocating raises, prioritize the harder-to-replace people to receive raises first.