The 3% Raise Dilemma, or Would You Jump Off a Skyscraper If Everyone Else Did?

OK, the title of this post is the NYC version of the age-old question, and the one I’m most familiar with you may have heard (or used): “If all your friends jumped off a cliff, the bridge — or, for Indiana, into the quarry — would you, too?”

Do you remember being on the other end of this question? What had you been up to? What was the point of this parental rebuttal to your childish example of group think?

It was to get you to think. To believe in yourself strongly enough to ask the question, “Why?” when a group of people with whom you generally belonged felt pressured to act in unison before really thinking it through. To realize that you can and should have an opinion, too.

This brings me to our plans for next quarter and next year. Granted, 3 percent annual salary increase budgets are, “Deja vu all over again,” for us. What’s the big deal? We’ve dealt with it before and we can deal with it again.

The thing is, this 3 percent budget thing started back in the full blown Great Recession, when some of us were not getting any pay raises and others were looking at 1.5 percent bumps, if you can give any credence to that practice.

It was no fun, but it made sense given that many of our organizations were holding on for dear life. Our job was to make it work, and we did.

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Why still only 3% increases?

Fast forward to 2015/2016 — the world has changed. Our companies are profitable again, and the marketplace — while volatile and unpredictable — no longer seems out to get us. As leaders, isn’t it time for us to recognize this and adjust our thinking? Why aren’t there alternative courses of action opening up to us? It’s a question worth asking.

Please recognize that I am not damning the salary survey results. I am instead encouraging a diligent commitment to understanding what our companies mean when they settle on a 3 percent budget for increases this year.

If everything we do in compensation is communication — and it is — you, as your company’s compensation expert, and your executives should work through the answers to these questions. If you don’t, you might well deserve caustic comments from your managers and employees about the meaning of this year’s increase (compared to the meaning of the executives’ increase, as just one example).

  • Why only 3 percent? From a business results standpoint –– Increasing productivity, even in a sluggish economy, eventually leads to some form of earnings. How have you explained the progress your company is making to your shareholders? If profits are growing, the P/E ratio is promising, but the salary increase budget is 3 percent, odds are you are planning to reinvest the money in the company in some way. Why is this a good decision? How can employees convince themselves that your business strategy, whatever it is, is worth the tradeoff with their own income? They deserve that clarification if you want them to pitch in.
  • Why 3 percent? From a competitive standpoint — Here’s where the jumping off the bridge question fits the best. I really encourage you to test yourself. Tell the truth: Is 3 percent a no-brainer because everyone else is doing it? What does that say about, well, why I should want to invest my time and effort in my job, just for starters? When I use “I” it means, you know, those hundreds or thousands of employees that you’ve got out there.
  • Why 3 percent? From a talent management standpoint — Are you telling promising new hires, “Don’t worry, if you perform, you’ll earn much more than the annual budget number?” Isn’t that just a bit like saying, “Don’t worry, if you pay your taxes regularly, you’ll probably earn a refund?” That’s not really a sparkling picture of my future or my return on investment (of my skills and experience).
  • Why 3 percent? From a personal standpoint — What will it take for you to feel satisfied with your January 2016 salary? Why? Whatever is happening for you, it is also happening for some subset of the employees out there. How do you feel about the recognition you’ve been receiving for your contributions?

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

Margaret O'Hanlon is founder and principal of re:Think Consulting. She has decades of experience teaming up with clients to ensure great HR ideas deliver valuable business results. She has worked with early-phase and Fortune 500 companies, as well as universities, non-profits and local firms. Before she founded re:Think Consulting, Margaret was an Principal in Total Rewards Communications with Towers Perrin. Contact her at mohanlon@rethinkconsulting.com.

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