The 31-year-old lodged a rejected transfer request to the Canaries last month but remains a Norwich player.
"Grant Holt's not someone who's been in the Premier League all his life and had Premier League wages," McVeigh told talkSPORT.
"Holt's had to put a shift in with every club he's been at. In my mind he deserves [the wage increase]. If it was me making the decision I would just give Grant Holt the contract that he wants [so he stays at the club]."