How to Tell Employees There’s No Annual Increase This Year (Without Causing a Mass Resignation or Emotional Stampede)

Delivering bad news in HR comes with the job, but there’s one announcement that will always land like a cold splash of water:

“There will be no annual increases this year.”

If you’ve ever had to say it, you know the look employees give you. It’s a blend of disappointment, panic, and the silent cry of, “Why are you doing this to me personally?”

And yet—sometimes it’s the financial reality.
The question becomes: How do you communicate it without crushing morale or commitment?

I once worked with a leader who delivered this message the worst possible way: one stiff email, no explanation, no empathy, no acknowledgment. Just a flat announcement buried between a reminder about parking passes and a link to the new PTO calendar. People were livid. One employee printed it out, highlighted it like a Bible verse, and showed everyone her “favorite part”—which was the complete lack of humanity.

Lesson learned: when you drop news like this poorly, even your top performers start updating their résumés in the parking lot.

But here’s the good news: there is a way to deliver it honestly and keep people with you—engaged, respected, and surprisingly understanding.

It starts with telling the truth like a human being instead of a corporate robot.

Employees don’t expect magic. They do expect transparency. When you clearly explain why increases aren’t happening, where the financial challenges came from, and how the organization is protecting jobs, people listen differently. Honesty doesn’t fix the disappointment, but it builds trust—and trust goes a long way when money isn’t on the table.

But transparency without empathy is just data.
This is the moment to acknowledge the emotional reality: people are trying to survive rising costs, families, responsibilities. Let them know you understand the timing is hard. Don’t pretend it’s not a big deal. Nothing makes people angrier than pretending a pay freeze is “just another update.”

Then—and this is where many leaders fail—you have to show what’s happening instead of increases. If you only take something away, morale sinks. But if you add support, development, recognition, and involvement, commitment stays alive.

This is the time to double down on the non-monetary things people actually value:

More meaningful feedback
Not the “good job!” drive-by compliment—the real kind that helps people grow, feel seen, and understand their impact.

Career conversations
When raises aren’t an option, growth is the next best gift. Talk about their future. Show them the path. Give them development that feels intentional, not generic.

Flexible options
If you can’t raise salaries, you can raise quality of life: schedule flexibility, remote days, lighter meeting loads, project autonomy. People treasure time even more than money sometimes.

Visibility and appreciation
Celebrate wins publicly. Thank people privately. Recognition is free and priceless at the same time.

Skill-building opportunities
Training, mentorship, shadowing leadership, special projects—employees will stay when they feel invested in.

Openness to ideas
Nothing strengthens commitment like inviting employees to influence processes, improvements, and decision-making.

When people feel valued in multiple ways, a lack of raise becomes a disappointment—not a dealbreaker.

And here’s the thing: employees can sense when leaders are avoiding them or hoping the news “just blows over.” Don’t do the disappearing act. Be present. Answer questions. Hold space for frustration. That alone can keep someone from mentally packing their desk.

It’s not the pay freeze that destroys morale—it’s how leaders handle it.

Deliver the truth clearly. Honor the impact. Show what support looks like moving forward. Lead with steady hands instead of panic.

If you do that, employees might still be disappointed—but they’ll stay connected to the mission, to each other, and yes… even to you.

And when better financial days return, they’ll remember how you showed up when things were tight.