MSU Extension Business

I often get asked by producers, “what’s the best way to give raises?”. The short answer… there is no “best way”, rather several alternatives that may or may not fit your farm, business, or industry. Typically, raise strategies fall into two camps: longevity-based and performance/merit based. 

Longevity-based programs are certainly the easiest to manage. Longevity based raise programs give a certain percentage raise to all employees.  For example, employees might get a two-to-three percent raise each January with the intention of covering inflation and a small increase to reward them for staying with the business.  This type of program may be very appropriate for businesses that cannot easily define the metrics on which to build a performance-based raise system, or when job results are much more team focused rather than individual focused.  Dairy farms, for example, are very team performance focused, so a longevity component to raise programs makes a lot of sense. Almost every position on the farm contributes to the production of high quality milk, so all employees should be rewarded.  Where longevity-based programs fall short is in trying to reward your best employees.    

Performance-based raise programs are designed to reward your best employees and encourage employees to perform at a higher level. Certainly, you value all of your employees, but there are those that you know you would sorely miss if they leave your organization/farm. You might call them your “right hand”, or indispensable. You know they would be hard to replace, so you want to make sure they stay around, and continue to be motivated to perform at a high level. You may also want to encourage all of your employees to strive to reach a high level of performance. This “encouragement for all employees” is where performance-based raise systems become difficult. If anyone should be able to achieve the raise, you need to have a system of metrics (measurements) that are well defined and understandable. High achieving employees will want to know what they have to do to earn the extra raise. If you cannot articulate this to your employees, and defend your raise decisions based on clear metrics, then you are better off to stay away from a performance-based system. Nothing will frustrate your employees more than having them feel as if they have given their all and feel that you have arbitrarily decided not to give them the raise.

Until a recent professional development trip to Texas, these are the two systems that I most often encountered, often a combination of the two. In May of this year, the Michigan State University Extension Dairy Team traveled to Texas to learn from the dairy industry in a different part of the country. We were interested in how they handled various management areas on their farms, including employee management. One farm stood out in their unique method of dealing with employee raises.

The dairy farm was part of a large, multi-site operation. A dozen employees were responsible for milking the cows (four employees per shift), twice per day. The farm utilized a competency-based raise system to allow employees to move from level one to level four. Each level included an increase in pay. This farm employer put considerable effort into their training program.  Initially the level one employee received two-to-three days of intensive training, provided by the lead employee for that shift. Once the employee had completed 30 days of employment, they could choose to take additional training in order to move up from level one. The training was offered at scheduled times and included both classroom style training, as well as self-paced videos and reading materials.  In order to move to the next level, the employee needed to pass a test given by the employer. The first two bumps in level and pay, were up to the employee alone. Employees got to choose which upcoming training they wanted to participate in (or not), and the competency test was the sole measurement deciding if they would receive the raise. The beauty of this system is that it encouraged employees to self-determine their growth in both knowledge and pay. It also provided management with the knowledge that employees knew how to do the job as trained. 

At level three, there was added responsibility. And at the final jump from level three to level four, management provided some additional input, and looked at employee qualities like teamwork, timeliness, attitude, and attention to detail. Tenure also factored into this final bump in level and wage. Once an employee moved into this final level four, a longevity-based raise program was initiated with him/her.   

This farm had not only developed a unique system of giving raises but had also developed a comprehensive training program. The emphasis placed on employee training indicated that they truly cared about their employees’ growth in job competence and understood the importance of employee training in achieving their farm’s goals.

Raises are an important part of how you manage and work with employees. Employees need to understand the system from the day of the job offer. The system needs to be consistent and communicated. Consider linking raises to your training program. Raises are important both to meet the needs of employees and to remind them how important they are to the business. Use the opportunity of giving a raise to tell them that you care about them and you appreciate that they care about the business.