Having been a human resources consultant, manager and supervisor for over 33 years, let me state a truism. There is always a reason for employers to want to depress salary increase budgets. The reasons vary over time, but employees have been continuously counseled on their employer’s need for holding down the salary increase budget. So, if we really want to help the middle class in America, we could start by giving people deserved raises. I am not talking about an across the board same percentage raise for everyone, but let’s begin with freeing up a little more of a salary increase budget and leverage those dollars wisely.
Having seen this issue from the three perspectives noted above, it is truly amazing how much more money can be allocated to employees if you go from a 2.0% or 2.5 salary increase budget to a 3%, 3.5% or 4% budget. These extra one-half percentage points will permit further delineation between good and average performers and those who are further beneath their market salary median, which is the goal for most employers’ compensation plans. Middle class Americans have been treading water for several years now and it is long over due to begin to pay them more than we have.
One of the dilemmas for employees in a down market or with a struggling employer, is the employee downsizings are done in concert with the salary increase budget. What do I mean by this? If you have a salary increase budget of 3% of payroll and do not let people go, the supervisors will manage to the 3% giving “less than meets expectations” employees below 3% increases with some poor performers getting 0%. This will enable the better performers or the relatively underpaid good performers to be allotted more than 3%. As a sidebar, one constant challenge with this is everyone believes they are above average, which is quite difficult to be true.
However, if a company decided to downsize letting their lesser performers go – the ones who would get the 0% increases – then with the same 3% budget, the better performers will have to get less as the 0% increase employees have been let go. In essence, the company has moved the pay bar median downward and has to force fit the performance process to meet the budget. Which means the better performers will get less and the average performers will get below 3%. And, when this process is done poorly (as it almost always is), the truly better performers are upset by being told they are only “meets expectations” and by getting a lesser than expected raise.
Throughout the recession, many companies were forced to do this, so salaries became depressed. If you worked for a company in trouble and were a good performer for several years in a row, the dampened raises you received would compound, leaving you further behind. If you were an average performer, these steady Eddie’s were at best treading water or may have lost ground.
So, with the recovered and further growing economy, 2014 has been the start to the mindful retention of key employees. 2015 will likely see a greater need to retain key and average employees. More employees are updating their resumes and are looking for what the market has to offer. Employers would be wise to help the middle class by giving them a raise. I can assure them the cost of turnover in a bubbling economy is greater than those targeted salary increases if you don’t.
For employees who are testing the waters, two pieces of advice. Don’t leave a job until you have one. And, be prepared to leave (or consider options) if you ask your employer for an increase (either with or without another offer) and the employer says no to your request. If you are not prepared, then you may not want to ask the question. It goes back to every employee believes they are better than average, when that is difficult to be true. However, even solid performers have fallen behind, so your request may be justified. You should be able to make more money if you leave, but the questions are (1) do you want to leave and (2) are the skills you have more intrinsic (related to where you work) or extrinsic (easily transferable to a new employer)? If the former, you need to tread more carefully. Either way, be diplomatic in your request.