How to Tell an Employee They Didn’t Get a Pay Raise or Promotion

Posted February 8, 2018 by Moses Balian in Managing Your Team
Conversations about compensation and titles can be uncomfortable, especially when you have to tell an employee no. These tips can help.

Raises and promotions are the gold standard for recognizing an employee’s contributions to their company. Higher compensation and greater responsibility signify personal growth and successful alignment with performance milestones and business objectives.

Unfortunately, not everyone can get promoted or be the recipient of a pay raise each time they’re granted. Whether due to budget constraints, the needs of the business, or an employee not exceeding performance expectations, individuals on your staff will ultimately be passed up for one of these career growth opportunities now and then.

When you know that someone will be disappointed by a raise or promotion decision, the worst thing you can say is nothing.

Managers, especially at smaller companies, generally have a sense of when employees feel like a raise or promotion is on the horizon. The employee’s hopefulness may be based on the career development of those around them and the length of time since their last increase, or it may be completely unfounded. Regardless, when you know that someone will be disappointed by a raise or promotion decision, the worst thing you can say is nothing.

Your company’s decision not to promote someone or raise their pay will ultimately be due to one of three reasons:

  1. They didn’t earn it
  2. It doesn’t suit the needs of the business
  3. There isn’t enough money

Reasons to Withhold a Promotion or Raise

Reason 1: Performance

When someone is passed up for a pay raise or doesn’t get promoted due to their performance, they might not have even been expecting one. If an employee does broach the topic, it could accompany a decline in their morale as a result of witnessing the promotion of others around them.

Related Article: 10 Affordable Ways to Boost Team Morale at Your Company

Should the employee approach you, their manager, or HR, don’t host the conversation off-the-cuff. Schedule time a few days in the future for a formal discussion. This can be an invaluable opportunity for a solid, but not exceptional, performer to receive valuable and actionable feedback as to where they can improve.

Come prepared. What do you want to say, and how do you want to say it? Open the conversation by explicitly stating the objective of the meeting. “We’re having this conversation to discuss the company’s decision not to promote you at this time on the basis of performance.”

First, listen. The employee might be upset, and just needs to be heard. Allow them this release, so that the conversation can continue productively. Don’t interject with justifications. Manage any gut emotional reactions you may be feeling. If they pause expectantly, you can say, “Thank you for your feedback, anything else?” You’re a diplomat — seek to understand. You do not have to indicate agreement.

Once they’ve shared their perspective, close that part of the conversation. “Great, let’s continue by talking about ways where you can improve your performance, so that next time you can be considered for an advancement opportunity.” Keep the conversation on track, and always look forward. Only reference past instances that may have adversely affected their performance for the sake of coaching, not to scrutinize. Seek closure and clarify expectations.

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Reason 2: Business Needs

Not getting a raise or promotion due to business needs is the most straightforward. The business might not be growing, no one has resigned to create a vacancy, or there just isn’t a gap in management for this person to fill.

Remind employees that pay raises and promotions are not the only benchmarks of career growth. Use your existing performance review process to help employees explore potential areas of expansion of their role. If they’re executing their prescribed duties with flair, where else could their talents be plugged in to the business’ development goals?

Remind employees that pay raises and promotions are not the only benchmarks of career growth.

Another tactic? Consider implementing a mentorship program to promote holistic career growth. Staffing-wise, your company can benefit immensely when junior employees develop and mature under the mentorship of your strongest leaders. If you lose an executive or manager, an internal promotion to vacancy can have huge upsides and cost savings. Since the person already knows your business, and there are no recruiting and onboarding costs.

Promoting from within is also a great way to increase morale for the whole company since it demonstrates recognition of hard work. But you never want to promote someone who isn’t ready. Help prepare your rising stars for these opportunities!

Related Article: 10 Delightful Employee Reward and Recognition Ideas (on a Budget)

Reason 3: Budget Constraints

This conversation comes with its own set of challenges. On one hand, it’s easier for managers to host because there’s no decision to explain or justify. The circumstances are out of their control. On the other hand, you might have to tell a high performer who is deserving of financial recognition for their achievements that they have to wait. This can lead to retention issues, and your top talent could start seeking greener pastures.

One option here is to offer someone a promotion with no pay raise. This isn’t advisable in all circumstances, and it’s crucial that you consider the employee’s preference. Some people care more about status and title than money. If nominal recognition will retain a high performer, then go for it. (Just make sure you have backfill.) Other personalities might see this brand of recognition as a bad deal (more work, same pay), and it could hasten their departure.

Tell the employee that they’re on the docket, and acknowledge that a pay raise could be in their future.

When someone doesn’t get an increase for budgetary reasons, it doesn’t mean nobody got a raise. It means that not everyone got one who is deserving. In this case, communicate that in order to give meaningful increases to some, others were passed up entirely. Tell the employee that they’re on the docket, and acknowledge that a pay raise could be in their future (but never make a promise). This can give them hope that when their time comes, their own raise will be substantial.


At the end of the day, everyone comes to work to get paid. Having formal conversations about compensation and titles can be such a departure from the day-to-day, that it feels like another world. Discomfort is normal. Misdirected tension can surface. You — the manager, HR, the business leader — are in charge. Take the time to mentally prepare for difficult conversations, speak slowly, and don’t get defensive. Your company is depending on you. Be the rock they need you to be.