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

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 being quite ready to perform at current expectations, individuals on your staff will ultimately be passed up for one of these career growth opportunities now and then.

How to Know When an Employee Expects a Raise

Managers, especially at smaller companies, often have a sense of when employees are anticipating a raise or promotion. This expectation could stem from observing the career development of their peers, the amount of time since their last increase, or other factors. Whatever the reason, when you know someone may be disappointed by a raise or promotion decision, it's important not to leave them in the dark.

If your company decides not to move forward with a promotion or raise, it’s usually due to one of three reasons:

• The timing isn’t right for the business

• There are financial constraints

• The necessary progress hasn't been made yet

Reasons to Withhold a Promotion or Raise

Let’s explore a few reasons why a promotion or raise may not be in the cards for an employee. 

• Performance

When an employee is not considered for a raise or promotion due to performance, they may not have been expecting it, but seeing others advance around them can affect their morale. If they do bring up the topic, it’s important to approach the conversation with empathy and care.

Rather than addressing the issue on the spot, schedule a time a few days later for a thoughtful, formal discussion. This gives both you and the employee time to prepare and ensures the conversation is constructive. It’s a valuable opportunity to provide meaningful feedback and help the employee understand how they can grow and work toward their goals.

How to Handle Performance Conversations

Be prepared for the conversation. Think about what you want to communicate and how best to approach it. Start by clearly explaining the purpose of the meeting in a thoughtful way, such as, “I’d like us to talk about the company’s decision not to move forward with a promotion at this time, and focus on performance.”

Begin by listening. The employee may be feeling disappointed or upset and might just need the chance to express those emotions. Give them space to share their thoughts without interrupting or offering immediate justifications. If they pause, you can gently say, “I appreciate you sharing your feelings. Is there anything else you’d like to add?” Your goal is to listen and understand, not necessarily to agree, but to show that you value their perspective.

After they’ve shared, guide the conversation toward a positive, forward-looking path. You can say, “Thank you for sharing. Now let’s focus on areas where you can grow, so we can work toward future opportunities for advancement.” Keep the discussion constructive and focused on development, referencing past performance only as a coaching tool, not for criticism. Aim for clarity on next steps and expectations, always moving toward progress.

• 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 into the business’ development goals?

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

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!

• 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.

When someone doesn’t get an increase for budgetary reasons, it doesn’t always mean nobody got a raise. It means that not everyone may have gotten one – even those who may have deserved one. 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. Tension can arise during difficult conversations, but as a manager, HR professional, or business leader, you play a key role in guiding these moments. Take time to mentally prepare, speak calmly and thoughtfully, and avoid becoming defensive. Your team is counting on you for steady support, so aim to be the calm, reassuring presence they need. 

How Justworks Can Help 

Having tough conversations about promotions and raises can be challenging, but with Justworks, you don’t have to navigate these moments alone. With our all-in-on solutions for PEO, EOR, or Payroll, we ensure you're supported with expert HR guidance, so you can handle even the most difficult conversations with confidence. Let Justworks take care of the details — so you can focus on your team’s growth, even when the news isn’t what they hoped for. Ready to learn more? Get started today.