When you ask some query on this general forum like this, the business etiquette demand disclosure of your name, designation, nature of your company or industry etc.
Related to your query you could have given following additional information:
a) The person who is asking for raise is he/she reporting to you? What is your role in the organisation? Are you from HR?
b) Do you have well-designed Policy on Performance Appraisal (PA)? If yes, then has it been communicated to the employees?
c) At what frequency the PA takes place? Is outcome of PA is linked to pay raise? What is the frequency of hike in pay?
d) Why employee is asking for raise? What is that special he/she has done? When did he get the raise last?
e) You have written that "appreciate the employee's hard work". What is the meaning of hard work? What is the measurable component? Who were the beneficiaries of his hard work?
f) Do you have employee recognition programme? If yes, then on what parameters you recognise the contribution of the employees? Is performance of employee recognisable?
Final comments: - Do not decline the employee's request for pay raise outright. I recommend you writing that "as per our company's policy, annual salary increment takes place in the month of ____. We will consider your request for your salary increment during that time."
Dinesh V Divekar
15th August 2012 From India, Bangalore