A reader sent me an email asking if a "1.75 percent raise" was appropriate for a salary in the $90,000 range. "It's like giving a waitress a $7 tip on a $300 meal," he wrote.
First of all, wouldn't it be awesome to get a 15 to 20 percent raise each year? Second, if any of you leave a $7 tip on a $300 meal, you deserve a good smack down; raises and tips are not the same things. The reality is a 1.75 percent raise can be an awesome raise, and it can be a terrible raise. Here's what's going on behind the scenes.
Budgets. Unless you're reporting to the CEO or maybe the CFO, your boss didn't set the budget for raises. The executive team determined what the budget would be. This was on the basis of numerous things--not just what the cost of living would be next year compared with last year. If the company doesn't have tons of money to spare, budgets are going to be lean.
Your co-workers. A limited budget--and even a large budget--has to be shared with your co-workers. If your boss is given 3 percent of her salary budget for raises and gives a spectacular performer 5 percent, that means there's less for everyone else. Unfortunately, it's a zero sum game. And something that's slightly unpleasant--if your boss's boss wants to reward someone in a different department, your boss can find a good portion of her budget yanked out from under her. You suffer.
Your own salary band. Many companies don't just give people salaries--they set salaries within what's called a salary band. Your job is evaluated and given a range. Depending on your skills and experience, the salary you were offered is somewhere within that range. If you're at or above the midpoint of that grade, you can see very, very small raises. In many companies, your boss needs special permission to give someone a raise above that midpoint. You can see situations that look strange if you don't know about the ranges. If Jane earns $90,000 a year, but the midpoint for her position is $100,000 a year, she's eligible for a much higher raise than John, who also earns $90,000, but the midpoint of his job is $90,000. He's as high as he can go.
How rare your skills are. Frankly, if there are lots of people out there who can do what you do, your boss needs to focus her budgets on people she'd struggle to replace. It's not personal; it's business. But, if you are super valuable and hard to replace, you have a better chance of a good raise. Here's one more thing to think about--longevity can actually hurt you here. If you've been in the same company for 10 years, people aren't terribly concerned about your jumping ship. If you've been changing jobs every two years and you're a top performer, they will want to make sure you stay.
Your performance level. Unless your company gives a straight cost of living increase to everyone, it, like most companies, bases raises on performance. If you're a high performer who isn't earning close to the midpoint of your salary range, you can get a pretty awesome raise. If you're a low performer with a salary near the midpoint of your salary range, you'd expect a lousy raise. Here's the super sad part about this--if you are totally awesome, but so are all your co-workers, you can still get a low raise--because there isn't an unlimited supply of money.
Is this the best way to do compensation? In an ideal world, each employee would be carefully evaluated on the basis of skills and market value. In the real world, companies take shortcuts. Positions aren't evaluated every year, and sometimes that works in your favor and sometimes against it.
When should you ask about your raise? Many companies do annual increases. If that's the case with your company, you should ask about three months before that. Why? Because at that point, your boss hasn't used up her budget. If you wait until she presents you with your pay increase information, it's too late. Even if you could make a convincing argument that you deserve a larger raise, your boss can't change your increase without taking money away from your co-workers or getting a special dispensation from her superiors. Neither is likely to happen. Ask early and present your case. Don't wait.
A bad raise isn't necessarily a sign of a bad boss or an unfair increase. You have to take all circumstances into consideration. If you feel cheated, by all means, ask your boss directly how she came to this number. And make sure you listen.