In a BLR webinar entitled "Pay Grades and Salary Increases: How to Build a Competitive, Equitable Compensation System in Your Workplace This Year," Dan Kleinman, principal of Dan Kleinman Consulting described some of the criteria to consider when deciding on employee raises.

Beyond the "macro" factors, you must also take into account the "micro" considerations of your individual employees. When employees ask you "How much will my raise be this year?" you will have to think about these criteria:

• The employer's overall financial situation
• The department's or division's "budget" for raises
• The employee's length of service
• The employee's qualifications (i.e., the scarcity of certain talents in the labor market and the likelihood that the employee will be paid more for them elsewhere)
• How much other employers in the local area are paying for similar jobs
• What the employee requires in the way of incentives
• General economic conditions, e.g., the inflation rate, changes in the cost of living, etc.

Explain your policies thoroughly. You may not be surprised to hear that employees believe that their pay levels -- and whether they receive raises and how much -- are completely arbitrary decisions by Human Resources and by management.

That's why it makes sense to explain your compensation practices -- how you arrive at pay levels and pay raise decisions.

Dan Kleinman is the principal of Dan Kleinman Consulting (www.dankleinmanconsulting.com), a California-based compensation and human resource consulting firm. For the past 18 years he has served a broad spectrum of regional, national and international companies providing compensation, performance, organizational planning and reward-system design services.