Last week, we got into the interview with an employee who believes he or she is worth more than they are currently being paid. In many companies, raises and promotions are handed out at the same time throughout the company. You may have given this employee the generally agreed-to cost of living increase, and he or she believes they are being underpaid and presents a case for more money.
One of the worst offenses your employee can make is to come in armed with what they consider to be the equivalent income at a similar company or with information about what another employee in another department is being paid. Certainly, the implication is that they’ve been looking around or have another offer.
That should definitely be a show stopper, and you should begin to plan on his/her replacement right then and there. You might also want to find out how they obtained information about another employee. If it is not true and based on hearsay, you should correct the record right then and there. But the only appropriate answer is "not at this time." If you give in and permit a raise as a stop-gap measure, what are you going to say to the person when you do find the replacement and have the termination discussion? You have put yourself in the position of having given a raise to someone you plan to terminate, which opens the company to a possible wrongful termination case.
In other cases, they are using standard industry publications or surveys. While these can be useful, they cannot be used easily to compare your company against some sort of broad industry survey. It’s the classic apples and oranges comparison.
There are times when the employee knows they can’t make any more money in their present job and will ask for more responsibility. Here you have to carefully examine that person's qualifications for the promotion and outline the steps that they will have to undertake to get there or perhaps look for the right opportunity to place them in that higher position.
Of course, it's much easier if you agree with the need for more money and the company has the budget to support that need. That’s the easy part of management.