Terence has been a solid team member the last 4 years, and in the last 18 months has really become an essential part of the team. When you hired him right out of school you got a real steal — the economy was down, you could tell he was smart — so you hired him on the low end of your range. Though you’ve been giving him annual increases, with all he’s taken on, it would cost you a lot more to replace him than he’s making.

But now you don’t know what to do. Terence came to you and he’s looking for a 20% raise or this valuable employee is going to quit. That raise is a lot of money — where is that coming from? On the other hand, replacing him is going to hurt!

Something has gone horribly wrong

The first thing to recognize is that something has gone horribly wrong. It’s not supposed to be this way! How is it that Terence doesn’t feel that he can come to you and discuss this without a threat? Has he been talking about his pay for a while and you’ve been ignoring him? Do you categorically deny requests for pay increases?

Your employees need a reliable way that they can address these issues with you that doesn’t involve threats! This is something you have to start doing differently right away — or you are going to get more threats!

Don’t react, respond

When someone pushes you into a corner it’s easy to react! I see people go both ways, instantly caving “I’ll give you whatever you want.” Or going the other way, “I’ll never cave to pressure like this; don’t let the door hit you on the way out!” Neither is a good response.

First, let’s look at the situation without the threat — is Terence being fairly paid? What would you have to pay to attract a candidate with similar skills and experience? Salaries are on the rise, and you hired him during the worst of the recession — maybe he has a point. If so, look rationally about what you’d pay to replace him. I might be willing to go a little higher since you know Terence is a good employee and you don’t have to conduct a search to get him. Is that enough to keep him? If so, you need to give him a raise and keep him. If not, well, it’s time to start a search…

A word about counteroffers

I’m not a fan of counteroffers (when an employee quits and you offer them more money in order to get them to stay.). If an employee has taken the time and energy to look for another job, and then comes to you to quit they need to go. They have likely been mentally checked out for a while and there is more here than just money. But if someone is coming to you saying “pay me or I’m going to look for a job” they haven’t mentally checked out — they just don’t feel like they can address it without a threat.

Careful not to start a trend

If you do give Terence a raise, you need to make sure you don’t communicate to your team (or Terence) that the way to get a raise is to threaten to quit. First, let Terence know that this will ever fly again. He can come talk to you if he feels underpaid — but if he threatens you, you’ll walk him out the door (and mean it). Next, you need to look at the rest of your staff and see where you might be getting some “bargains”. You don’t want to start of trend of people who threaten you in order to get the pay they deserve — but you can’t just boost everyone’s salary all at once. Are people doing the job you hired them for, or have they outgrown that? Do you have a consistent review process in place? How can you address this in a way that’s fair to you and fair to the team members?

Money isn’t the reason most people quit … what are the other reasons?

Money usually isn’t the reason that employees quit or stay, unless they are way underpaid. Dig down and see if you can find out what other things are going on that Terence is uncomfortable with. Is there something about the culture, is the road to promotion unclear? Is there something about you? Most employees don’t leave jobs, they leave bosses! If you want to keep the team you have, it might mean that you need to be different.

What’s been your experience? Have you faced a threat like this? How did it go?