Do you know that 90% of employees who have not had a raise in 2 years voluntarily resign despite a good performance review?

Yes, 90%, and it's a very worrying situation that affects employee retention and the culture of the workplace.

So today I want to talk about a very difficult moment where you have no choice but to have a conversation with your employee regarding not raising or reviewing his salary in year two.

Imagine you’ve the best talent, and due to some unavoidable situations, you don't want to lose this hire.

So as a founder, what do you do?

It's a very difficult situation, and I’ve seen founders lose their best talent because of these conversations.

From the outside, the conversation looks easy, but when reality catches up, that's when you'll want manna from heaven.

Then, on top of the pay rise conversation, this employee is already in a high salary band, and if you increase his pay, it will go above board and affect the budget.

And adding salt to the injury, this employee is one of your best performing team members, someone who has been carrying an increased workload without complaint, which is exactly why quiet quitting after no raise becomes such a real risk if this conversation is mishandled.

So let me share some strategies you can use to minimize the fallout.

These are strategies I’ve experienced myself, and I know if you do it in a clear way, you will succeed, and it will build a strong business brand through your internal employees.

So without further ado, let's go.

1. The only reason that actually lands is the true one don't hide behind "budget" if performance is really the driver, and don't manufacture a performance issue if it isn't.

2. A documented comp philosophy or merit matrix depersonalizes the decision and makes it about the system, not about you.

3. A path to a different outcome next cycle keeps a hard year from becoming an automatic resignation.

4. Bonuses, scope, title, and equity can't fully replace a raise, but they show the contribution was seen.

5. A follow-up before the next review cycle does more for retention than the original conversation itself.

When you lead with a reason, please don't say anything like "the budget doesn't allow it."

The moment you say that, your talent will immediately lose touch with you. This is because the person you're having this discussion with is a high performer, someone who has helped the business generate revenue.

Most founders start manufacturing stories that aren't there, and immediately after the meeting, your talent will start quietly disengaging from the work.

So you need a real reason that won't degenerate into cold reception after the meeting, especially if a promotion or raise was expected and simply isn't possible right now.

This is where you need to be truthful, the way we're taught in church to be like Jesus Christ.

Yes, if you lie in this step, you can forget about retaining your best hire. So what you need to do is come up with the salary band that shows where your top talent sits, so he can see exactly where his salary is located.

That changes the conversation into a productive one, because if you don't do that, the whole conversation will feel like you're hurting your talent instead of showing how the system actually works when it comes to compensation.

In fact, this is the best way to minimize the fallout with your best talent, because you would have shown the reality instead of just a verbal compensation framework.

If the matter is still the budget, what I would recommend is this: come up with what's approved for that period, the compensation framework we've talked about, and clearly explain to the employee that this year it will be difficult to raise the salary, but come next year, based on business performance, you can plan to have a salary review.

Simple and straight to the point. Transparency here will help you a lot, and it will build trust since you would have presented real facts to the employee.

Though at first the employee will feel distressed, as you go on, the coldness will start going away and respect and trust will emerge.

This is related to the point above, but here what I would recommend, as you explain to the staff about the current budget and the compensation framework, is to also come up with a clear path on how the expected outcome will be achieved the following year.

This will help the employee plan, and when that period comes, it will be much easier to implement the planned outcome.

But if you don't have a planned and clear outcome, expect some resentment, frustration, and to some extent, voluntary resignations.

If truly there will be no salary raise, what I normally advise the cofounders and business leaders I work with is that at least they can look at something different that can motivate the talent.

What I normally suggest is that at least every quarter, employees can be given quarterly bonuses based on business performance.

This will boost employee productivity despite not being given a raise. Don't wait for a whole year to give bonuses, just try at least each quarter, or twice a year, to have something for the staff.

I know recognition has its own place, but it's not something to bring into this conversation. Remember, the big elephant in the office here is the increase in salary, not recognition.

As a founder, you need to think and analyze the repercussions in case the employee leaves after you've had that communication of no raise.

Because you know what happens when your best talent leaves? The cost of hiring goes up, it creates tension in your team because people will start thinking, "if there's no raise, why stay." Your business brand will be in jeopardy, and so many things will happen.

So when you're honest about the repercussions, it will help you plan how to address them.

Even a small percentage of employees leaving under these circumstances can trigger a much bigger ripple effect across the team than founders expect.

Once you've done all the strategies I've mentioned above, what you need to do as a truthful person is make sure you document and follow up on what you communicated to the employee.

Employees are very good at documenting their own personal issues, especially when it comes to salary matters.

Don't treat it as a one-time conversation, at least every quarter you need to make a follow-up with the staff so they can see the determination and willingness for the matter to be resolved amicably.

But if you treat it as a one-and-done conversation, expect no good result, and it will catch you off guard at an unexpected time.

When you have these pointers in your action plan, having the difficult conversation with the employee will generate a productive outcome.

But if not, the chances of the person resigning will be high.

What I would suggest, and it's very important as a founder, is just make sure you are honest, and when the time comes for implementation, make sure you live up to your words.

Don't wait and then hear that your talent resigned without your knowledge. It's a pattern seen even among federal employees, where pay structures are rigid and slow to move, yet morale and retention still hinge entirely on how transparently these conversations are handled.

Well, this is it for today. I hope these tips will remove the tag that employees normally give their bosses: the budget person!

If you've got feedback, share it below.

About 90% of employees who haven't had a raise in two years leave voluntarily, even with strong performance reviews.

Citing budget as a blanket excuse without transparency, or treating the conversation as a one-time event with no follow-up.

By being transparent about compensation bands and budget, offering a clear timeline for a future review, and introducing alternative incentives like quarterly bonuses.

No. It also affects organizations with rigid pay structures, such as federal employers, where transparency in these conversations still determines morale and retention.