What should I do with a staff who thinks he should get a higher increment because he has done more than the rest on the team?

I had a salary review with one of my staff today as this is required by all managers in the company to do by the end of the financial year.

This staff has received a pay increment about half a year back. I was not his manager yet at the time. His previous manager gave him the increment. I'm not exactly sure about how the increment came about but he had a 10% bump before his previous manager left for another department.

Due to the increment he had 6 months ago, based on company's policy, he is not entitled to the year end increment in this salary review.

He got very upset about it and he said like he was expecting to have an increment and now he has lost all his morale to work harder. He wants to appeal to me and the management for an increment. So I asked what is his expected increment then. He said he was expecting another 20% increment to his pay. He thinks that this would be fair because he felt that he has put in a lot of effort into his job. He even said that that he thinks the system we are maintaining would have fallen apart if either of us (he and I) wasn't on the team. (I know he actually really meant himself only but just included me in his sentence so that it sounded better.) He clearly knows he holds some negotiation power here because everyone on the team is new and he is the only one who had stayed for long enough to know more than the rest. So, he thinks he should deserve a bigger increment.

As his manager, this is putting in me a very difficult situation.

First, I recognise the fact that he has done more work than the rest on the team because everyone else on the team is new. He has been with the company longer than the rest and he was the only person who knows the system most. I'm a new joiner myself and so I naturally relied on him to help with some of the things in the system while I start picking up the things.

Second, as his manager, I do wish to help him to get his ideal pay range. However, I'm aware that a 20% increment might be a little too much. The average increment on the team is not even more than 5%. In fact, 20% more for him will mean he will get paid way more than me. It's not that I'd mind that he will end up getting paid more than I do but it's not going to be easy for me to tell the senior management to give him another 20% increment just because he did more than the rest on the team. The company has already given him 10% increment 6 months ago and it's very difficult for me to simply justify for another increment of any amount, even a 5% increment.

This is difficult for me because, on one hand, I do recognise that he has done relatively more work in the last 6 months when compared to the rest on the team. I do want to motivate him and keep his work morale. However, it's not going to be easy for me to justify for another pay increment simply because he is working more than the rest. If I were to tell him that he should be contended, I'm pretty sure he would be upset and will think that I'm a bad manager for not fighting for an increment for him. I know he will based on my understanding of him. It's not going to be good for me in the long run too. As his manager, I do wish to help him to get his ideal salary. It would also be an easy option for me to resolve the current problem at hand and in the short term if the company could just give him the pay he wants. But, on the other hand, if I go ahead and submit his request to the senior management and support him and justify it as simply because she had done more work than the rest, it's going to look very bad on me.

I believe the senior management would have expected me to managed his expectations on my end though this would make it difficult for me in the long run. Imagine if he starts acting like he is in low morale or whatever excuses for doing less and what not, it's going to be difficult for me at managing the situation.

Do you guys have experiences like this? Any advice on approaching this issue?

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