A reader emailed me asking if a “1.75 percent raise” would be appropriate for a salary in the $90,000 range. “It’s like tipping the waitress $7 on a $300 meal,” he wrote.
First of all, wouldn’t it be great to get a raise of 15 to 20 percent every year? Second, if any of you left a $7 tip on a $300 meal, you deserve a good slap; Increases and tips are not the same. The truth is that an increase of 1.75 percent can be a wonderful increase, and it can be a terrible increase. Here’s what happens behind the scenes.
budgets. Unless you’re reporting to the CEO or perhaps the CFO, your boss hasn’t budgeted for increases. The executive team set the budget. This was based on many things – not just next year’s cost of living compared to last year. If a company doesn’t have a lot of money to spare, budgets will be slim.
your colleagues at work. A limited budget—even a large budget—must be shared with your co-workers. If your manager takes 3 percent of her salary budget for increments and she gives a great performer 5 percent, that means there’s less than that for everyone else. Unfortunately, it’s a zero-sum game. And a rather unpleasant thing – if your boss wants to reward someone in a different department, your manager can find a huge chunk of his budget ripped out from under him. you are suffering.
Your salary range. Many companies not only give salaries to employees, but set salaries within what is called a salary range. Your job is evaluated and given a scope. Depending on your skills and experience, the salary you are offered is somewhere within that range. If you’re in the middle or above that degree, you can see very, very small increases. In many companies, your manager needs special permission to give someone a raise above the midpoint. You can see situations that look weird if you don’t know the ranges. If Jane makes $90,000 a year, but the midpoint of her position is $100,000 a year, she qualifies for a much higher raise than John, who also earns $90,000, but the midpoint of his job is $90,000. He is as high as he can get.
How rare are your skills? Frankly, if there are too many people who can do what you do, your manager needs to focus his budgets on the people he will struggle to replace. It’s not personal. It’s work. But, if you’re super valuable and hard to replace, you have a better chance of getting a nice raise. Here’s another thing to think about – longevity can hurt you here. If you’ve been working for the same company for 10 years, people won’t be so concerned about your jump ship. If you change jobs every two years and you’re a top performer, they’ll want to make sure you stay.
your level of performance. Unless your company offers a direct cost-of-living increase for everyone, it, like most companies, raises the baseline for performance. If you’re a high performer and aren’t earning near the middle of your salary range, you can get a nice raise. If you’re a low performer and your salary is near the middle of your salary range, you can expect a lousy raise. Here’s the really sad part about this – if you’re totally cool, but so are all your co-workers, you can still get a low raise – because there’s no unlimited supply of money.
Is this the best way to make compensation? In an ideal world, each employee would be carefully evaluated based on skills and market value. In the real world, companies take shortcuts. Positions aren’t evaluated every year, and sometimes it’s for you and sometimes against.
When should you ask for a raise? Many companies do annual raises. If this is the case with your company, you should ask about three months in advance. Why? Because at this point, your manager has not exhausted her budget. If you wait until you are presented with your salary increase information, it is too late. Even if you can make a convincing case that you deserve a bigger raise, your boss can’t change the raise without taking money from your coworkers or getting special dispensation from her bosses. Neither is likely to happen. Ask ahead of time and make your case. do not wait.
A bad raise is not necessarily a sign of a bad boss or an unfair raise. You have to take all circumstances into account. If you feel cheated, by all means, ask your boss directly how she got to that number. And be sure to listen.
This article originally appeared on Inc.