In the ideal world you'd pay all of your employees an exorbitant salary with dozens of extra perks -- and in exchange you'd get some of the most loyal employees in the workforce. But, keeping a business afloat often means you don't get to pay employees as much as you'd like, and you might have to deny a good employee a raise from time to time. If you've gotten a formal request for a raise, one way to address the request is to inform the employee of your decision in writing.
Beating around the bush isn't going to be very productive, so the best course of action is to come right out and say it. Type the date at the top of the letter, address it to the employee, and then in the first line of the letter, thank the employee for making the pay raise request. Use the second sentence to state directly that you are not granting the request. Then move into the section of the letter where you give a reason -- something you should always do when dealing with raise requests, advises the National Federation of Independent Business.
Room for Improvement
If you're denying the employee a raise because of her performance, use the second paragraph of letter to state the reasons for denying her, and then suggest ways she can improve in the future. Cite her sales figures, performance reviews, or some other work-related reason for denying the raise. Ask the employee to meet with you or another supervisor to develop a set of goals that can help her achieve what she needs to achieve to get the raise she wants. Name a date on which you'll review her case a second time. And if you're denying her because it's company policy not to issue raises before the employee has been at the company for a certain amount of time, say so.
If, on the other hand, you're denying the raise because of financial issues or restructuring within the company, use the second paragraph to let the employee know you're denying her the raise, but that it's not due to her performance. It's probably not good business to say "the company is broke," but you might say the company is not in a position to give raises to anyone. You might also say that the request is not well-timed and that you would like to reconsider the request at a later date.
Letting a good employee know it was not her performance that caused you to deny the raise may improve her morale a little bit -- but she's still not likely to be happy about the decision. If you have a productive employee who you don't want to lose, consider offering her other perks to keep her around. Offer her a more prestigious title, more vacation days or a better office. In the third paragraph of the letter, make mention of the "consolation prize." Putting it in writing in the letter makes it more real, showing you're serious enough about keeping her that you're willing to offer other perks in writing.