Your Best Employee Wants a Raise. What Should You Actually Look at Before Saying Yes or No?

Stoppler Hughes

Oct 6

9 min read

Your strongest employee has asked for a meeting, and you already have a good idea what it's about. They've taken on more over the past year, their results are strong, and they know their value to the organization. Now they want that reflected in their pay.

When an employee asking for a raise is someone you can't imagine losing, most leaders jump straight to two questions: can we afford it, and what happens if they leave? Both are fair, but neither tells you what the role should actually pay. A raise for one person affects internal pay relationships, future salary expectations, recruitment offers and what happens when the next person asks. Knowing how to respond to a raise request starts with treating it

as a compensation decision rather than a one-off negotiation.

Key Takeaways

A high performer asking for a raise doesn't automatically warrant a yes, but the request should prompt a proper compensation review.
Start with the role before the person. Determine whether the job itself has changed before deciding what the individual should earn.
Market data matters, but it only means something when weighed against internal equity, scope of responsibility and your compensation approach.
In Alberta, the Alberta Human Rights Act requires equal pay for the same or substantially similar work regardless of sex, so pay differences need objective, consistently applied reasons.
Check for pay compression before moving one salary. Fixing one pay problem can quietly create another.
Retention risk is a legitimate input, but decisions driven mainly by fear of losing someone tend to set expensive precedents.
Separate merit increases, market adjustments and promotions, since each one solves a different problem.

Three Different Reasons Pay Might Need to Change

Before weighing the request, it helps to know which kind of increase you might be considering. These categories can overlap, but blurring them makes future decisions harder to explain.

Situation	What is happening?	The question to ask
Merit increase	The employee is performing strongly within their existing role	How should performance affect pay progression within this role?
Market adjustment	The employee's pay has fallen behind the external market	Is our salary still competitive for this position?
Promotion or re-level	The employee is doing a larger or more senior job	Has the role changed enough to warrant a different level and salary range?

An 8% "raise" might really be 3% merit plus a 5% market correction. If nobody records that split, the next pay decision for that employee, or anyone in a similar role, starts from guesswork.

How to Respond to a Raise Request: Seven Questions to Answer First

1. Has the Job Changed?

Growing organizations often miss how much a role has shifted since someone was hired. A coordinator may now supervise two people, a specialist may be managing key clients or approving spending, and a manager may have gradually absorbed a whole department.

Compare the employee's current responsibilities against their original job description, paying particular attention to:

decision-making authority
people leadership
budget or financial responsibility
complexity of the work
client or stakeholder responsibility
accountability for business outcomes

If the position has materially expanded, the real question may be whether the role should be re-levelled or formally promoted, which is a different decision from a raise within the existing job.

2. Where Does the Role Sit in the External Market?

"I found this salary online" isn't compensation analysis. A useful market comparison accounts for job scope (two Operations Managers can have very different responsibilities), geography, industry, and organization size. A CFO at a 20-person company and a CFO at a 500-person organization share a title, but they aren't doing an equivalent job.

Market ranges also exist for a reason. Someone still growing into the full scope of a role might reasonably sit in the lower part of the range, while a highly experienced employee who handles the role's full complexity independently may sit further into it. The goal is to understand where the role should sit in the market, and where this person should sit within that range, rather than matching the highest number that appears in a search.

3. How Does the Employee Compare Internally?

External competitiveness is half the picture; the other half is how this salary relates to the people around it. You're looking for comparable level, complexity and responsibility, not just identical titles.

Say your strongest account manager asks for a 12% increase. Against market data alone, it might look reasonable. But suppose another account manager with similar responsibilities earns slightly more than they do today, a team lead managing four people earns only about 10% more, and a newly promoted manager earns just above the figure being requested. Approving the increase as asked would put an individual contributor above the team lead, and nearly level with a manager.

Salaries don't need to be identical. Experience, performance, specialized skills and scope can all justify differences, as long as you can explain them consistently. If you can't explain why one employee earns significantly more than another for comparable work, you may have found a broader compensation issue.

For Alberta employers, this is also a fairness obligation. Section 6 of the Alberta Human Rights Act requires employers to pay employees of both sexes the same rate when they perform the same or substantially similar work. The Alberta Human Rights Commission notes that factors like experience, education and merit can justify pay differences, but they need to be assessed objectively and applied consistently. It also notes that different job descriptions for two similar positions don't, on their own, justify a pay gap. (Federally regulated employers with 10 or more employees have additional proactive obligations under the federal Pay Equity Act.)

4. Would an Increase Create Pay Compression?

Pay compression occurs when pay differences between employees at different levels of experience or responsibility become unusually small. It usually builds gradually: market rates rise, new hires are brought in at higher salaries to compete, and existing employees receive standard annual increases that don't keep pace.

The result can be a new hire earning nearly as much as someone with five years in the role, or a supervisor earning barely more than the people they manage. Approving a sizeable raise for one high performer without checking these relationships can retain one person while creating a problem for three others.

Before approving a significant adjustment, model what the new salary does to the roles immediately above, below and alongside it. Sometimes nothing else needs to move, and sometimes the exercise shows that a broader review is overdue.

5. What Does the Performance Evidence Show?

"We can't afford to lose them" and "they're one of our highest performers" aren't necessarily the same statement. Look at:

results against established expectations
quality and consistency of work
growth in capability over time
ability to operate independently
leadership or knowledge-sharing
impact on clients, operations or financial outcomes

Be careful with highly visible employees. Someone who works late, answers every email instantly and regularly rescues urgent situations can seem indispensable, while a quieter colleague may be creating as much value by preventing those situations in the first place. Compensation decisions hold up better when managers can point to evidence rather than impressions.

6. What Is the Real Retention and Replacement Risk?

If this employee left tomorrow, what would actually happen? Consider how hard their skills would be to replace, how long recruitment would realistically take, what client or institutional knowledge would leave with them, and whether there's a credible internal successor.

Replacement economics belong in the analysis too. Imagine declining a 9% increase, then losing the employee three months later and discovering that qualified candidates expect about 15% more than the original salary. Add recruitment costs, months of onboarding and lost productivity in between, and the decision that saved money on paper has cost considerably more.

None of this means every request should be approved at whatever replacement would cost. There's a real difference between retention risk and retention panic. If someone is already well above the appropriate range for their role, repeatedly matching outside offers may only delay their departure while making your pay structure harder to manage. And if you'd routinely need to pay much more to hire than you pay competent existing staff, your structure may have fallen behind the market more broadly.

7. Can You Defend the Decision Consistently?

Employees don't need a salary spreadsheet for pay decisions to shape expectations. People talk, and managers remember what was approved for someone else's team.

When substantial raises go to whoever asks at the right moment, exceptions accumulate. Over time, pay depends more on who negotiates hardest, or which manager advocates most forcefully, than on the work itself. Before approving an exception, ask whether you'd be comfortable applying the same reasoning to another employee in comparable circumstances. If you wouldn't, revisit the rationale before the number.

Arguments That Shouldn't Drive the Decision

Some of the most common reasons given in these conversations are also the least useful on their own.

"They've been here a long time." Tenure can build expertise and institutional knowledge, but time alone doesn't set an appropriate salary.

"They work really hard." Effort matters, but pay should reflect the value, scope and performance of the role rather than hours or visible busyness.

"They have another offer." An outside offer tells you something about the employee's marketability. It doesn't establish what your organization should pay for the role.

"We can't afford to lose them." That may be true. If losing one person would put the business at serious risk, though, you likely have a succession or documentation gap that pay alone won't fix.

"If we give them a raise, everyone will ask." Avoiding a legitimate correction for that reason doesn't solve anything. If several employees have valid pay concerns, that's useful information about your structure.

When the Answer Is No

A well-supported no is very different from "there's no budget." If the salary is appropriately positioned and the role hasn't materially changed, explain how you reached that conclusion, then shift the conversation to what would need to change for pay to progress. That might mean expanding responsibility, developing specific capabilities, moving to another job level, meeting clearly defined performance expectations, or revisiting pay at the next formal review.

Only promise a future increase if you genuinely intend to deliver it when those conditions are met. Employees may not like the answer, but a clear explanation of how pay decisions are made builds more trust than an unexplained "not right now."

When the Answer Is Yes

Record why the adjustment was made, whether it was a market correction, recognition of sustained performance, a promotion, a re-levelled role, an internal equity fix, a retention adjustment, or some combination. That record becomes valuable when you review compensation across the organization, and it keeps today's reasonable exception from becoming tomorrow's unexplained salary anomaly.

Do You Have a Compensation System or a Collection of Salaries?

Raise requests often expose problems that already existed. If every pay decision requires leadership to start from scratch, informal salary management has probably run its course.

This is increasingly common. Mercer's July 2026 Canadian compensation planning survey found that about half of Canadian organizations had provided or planned off-cycle salary adjustments in 2026. Among those making them, only 30% regularly tracked and reported on them, while 45% logged them in systems without actively monitoring them. A company can make a series of individually reasonable decisions and still end up with an inconsistent structure if nobody steps back to look at the cumulative result.

Most small and mid-sized organizations don't need an elaborate corporate program to fix this. What they need is a foundation that makes pay decisions consistent: clearly defined roles and levels, salary ranges grounded in reliable market data, a consistent approach to merit and promotions, periodic internal equity reviews, and clear approval authority for off-cycle adjustments. Building that foundation takes compensation expertise, current market data and an objective view of how your roles relate to each other, which is where outside HR support tends to add the most value.

When your strongest employee asks for more, the request may reveal that they've outgrown their role, that your pay has slipped behind the market, or that compression has built up quietly over several years. It may also confirm that they're already paid appropriately. What matters is knowing which situation you're in before you give an answer, so the decision is one you can explain, support and apply consistently.

Stoppler Hughes helps growing organizations across Alberta build compensation structures that hold up as they scale, from job levelling and salary ranges to internal equity reviews.

Learn more at stopplerhughes.com.

Frequently Asked Questions

Should you give a raise to a high performer who asks for one?

Not automatically. Strong performance is one factor, but you should also consider where the employee's pay sits against the external market, how it compares internally, whether the role has changed, and whether an increase would create pay compression. A raise should have a clear rationale you could apply consistently to others.

How do you know if an employee is underpaid?

Compare their actual responsibilities with reliable market data for properly matched roles, then look at where they sit relative to comparable positions inside your organization. Job title alone is rarely enough for an accurate comparison.

What is pay compression?

Pay compression occurs when pay differences between employees with different levels of experience or responsibility become unusually small. It often develops when new-hire salaries rise faster than pay for existing employees.

Should you match an employee's outside job offer?

An outside offer is useful information, but it shouldn't automatically set pay. Consider whether the proposed salary fits the role, the external market and your internal structure. Matching an offer mainly out of fear of losing someone can create longer-term problems.

What is the difference between a merit increase and a market adjustment?

A merit increase recognizes performance within an employee's existing role. A market adjustment closes a gap between their pay and the external labour market. A promotional increase reflects a move into a role with greater scope. Knowing which one you're making helps keep compensation decisions consistent.

Do Alberta employers have equal pay obligations?

Yes. Section 6 of the Alberta Human Rights Act requires employers to pay employees of both sexes the same rate when they perform the same or substantially similar work. Pay differences can be based on factors such as experience, education or merit, but they should be assessed objectively and applied consistently.

When should a growing company formalize its compensation structure?

There's no universal headcount threshold. Common warning signs include inconsistent starting salaries, frequent off-cycle adjustments, pay differences nobody can explain, compression between employees and their managers, and salary decisions made without reliable market or internal comparisons.