Managing the Annual Pay Rise: A Strategic Approach for SME Owners

Pay rises are expected-but if mishandled, they can quietly damage your bottom line.

For every $40k salary, a 3% annual increase means an extra $1,200 per year per employee. Add that across your team, and your wage bill increases fast-especially when profit margins remain flat or costs are rising.

In uncertain or competitive markets, this can make the difference between surviving and thriving.

The Cost of Compounding Pay Increases

When salary increases are not paired with:

• Price increases
• Productivity improvements
• Team restructuring

… they slowly erode profit. And in low-margin businesses, that erosion is dangerous.

In a market where inflation, interest rates, and costs keep shifting, every dollar counts.

So, How Should Business Owners Handle Pay Rises?

Before agreeing to annual pay increases, review these areas:

1. Margin Impact
   Can your pricing absorb the increase, or are your margins already squeezed?
   
   
2. Staff Performance & Value
   Is the pay rise tied to performance or time served? Rewarding contribution ensures fairness and ROI.
   
   
3. Revenue vs Wages Ratio
   What % of revenue is spent on wages? If it’s creeping up, act before it’s too late.
   
   
4. Customer Price Adjustments
   Have you raised your rates? If not, you may be funding team raises out of your own pocket.

A Common Pitfall: Delay Without Data

Many SME owners delay reviewing pay structures or pricing strategies, especially when staff are loyal or long-term.

But in a tough economy, loyalty doesn’t replace margin.

Instead of saying “yes” by default, use a structured review:

– Align salary changes with real productivity gains
– Review your pricing model yearly
– Monitor wage % of gross profit or sales
– Don’t delay difficult decisions

Client Success Story: TimberLab

“It’s helped reduce my stress and let me lead again. Oxygen8 gave me space to think – and someone to call when it counts.”
– Grant McIntosh, CEO, TimberLab