When a service provider busts his or her butt for your salon/spa, for career advancement and to deliver the very best service experiences to customers – the reward could certainly be a pay raise.
Giving a service provider a pay raise seems like a rather straightforward process. However, the he or she “does a great job – give’m a pay raise” scenario barely scratches the surface.
There is a process that owners need to follow to ensure that raises are planned, affordable and done for the right reasons.
Salons and spas that pay commission on services are severely handicapped when it comes to raises. The so-called “raise tools” on commission are a commission increase, a price increase, or a combination of both.
- Too often, commission service providers have unrealistic expectations on how much commission a salon/spa can pay. This is more complicated by suites using the intentionally confusing “keep 100% of the profit” leasing tactics.
- Owners are pressured (held hostage) to agree to pay higher commissions than their financial reality can afford.
Here are my No-Compromise Leadership rules for pay raises:
Two separate conversations: “Performance reviews” and “pay raise reviews” must be completely separate and independent. Whenever “pay” is connected to a performance review, owners of both commission- and Team-Based Pay salons and spas set themselves up to have anything but a review of an employee’s performance.
- Quarterly and/or scheduled performance reviews should focus 100% on performance and coaching employees to improve and be their best.
- Talking about pay or raises during a performance review almost guarantees that “money” will overshadow the “performance” conversation and areas that need improvement.
Rethink scheduled Pay Reviews: There is no law or rule in business that says, “Everyone gets a raise at least once a year.” Scheduled “pay” reviews, annual or otherwise, is an invitation to mental torment for both owners and employees.
- When business and cash flow is great, raises are affordable and inspiring. In good times, an outstanding employee can receive one or more big raises.
- But what happens when business isn’t so great, cash flow sucks, and you have pay raise reviews coming up next month? You get stressed. It makes no sense to do scheduled pay reviews when your cash-flow plan is telling you, “We can’t afford raises at this time.” The employee has an expectation that a raise is coming and will be let down and frustrated when you say, “Sorry, no raise.”
- Eventually, employees get tired of the excuses and delays for raises. It’s all self-inflicted cultural damage created by the owner.
Two Raise Prerequisites:
- Cash-flow plan first – Broadband/raises second: A series of excellent performance reviews is your indicator that a raise has been earned. BUT, your cash-flow plan must “approve” the raise before giving it.
- Live your Cash-Flow Plan (revenue and expense budget): It is the leader’s job – your job – to live your Cash-Flow Plan by driving revenue, managing expenses and being fiscally responsible. Creating a Cash-Flow Plan and never paying attention to it is the single most self-defeating profit killer.
Here’s my challenge for you: If you ever give an employee a raise without getting “approval” from your Cash-Flow Plan first … you’re failing the basics of planning and issuing pay raises.
- If you want to give an employee a raise, calculate how much that raise will add to your monthly payroll costs in your Cash-Flow Plan. If the Cash-Flow Plan shows that you can’t afford the raise, don’t do it. If it does, give that employee the raise and enjoy the positive feelings for recognizing a great employee.
- If you want to give raises to a number of employees, follow the same instructions.
You can’t grow an amazing company with an amazing culture if you don’t have funds to fairly compensate your people. That’s why planning and controlling payroll costs are so critical to business success.