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The Disappearing Annual Raise

May 31, 2017 by Carrington Leave a Comment

This isn’t news to many, certainly not to me, but the annual routine of granting incremental pay increases is fading away. As job markets continue to tighten for good paying jobs, companies are looking for more impactful ways of rewarding good performance.

The annual raise just doesn’t work. For starters, it’s far too infrequent to make a difference. Once a year based on an often arbitrary review of performance does little to nothing to change the motivation of an employee.

Second, how much is 3% really worth? That’s the average increase for the average employee, with stellar employees receiving an average of less than 5% according to a Bloomberg article written in July 2016. Kiplinger expects the average rate to drop in 2017. If you are making $45,000 per year, what is $1,200 per year really going to do for you?

Our costs keep increasing, and often outpacing the pittance offered in this annual raise. While some companies are fleeing the annual raise model for a more performance based bonus structure, others are doing away with it altogether. The annual raise is not a reward, it’s to keep you from leaving.

A jar of cash on the table.

How many raises do you have left before you retire? I often forget that I am closer to 40 than 30. If I were to count on annual raises to get me to a comfortable retirement, I’d have maybe 20 left if I didn’t get let go for a younger, less expensive model. No thanks, I’d rather own my income – literally.

Where does that leave strong performers? Consider a bank manager or salesperson who grows their center revenue by 5% year after year. Fast forward 10 years and that person, without a significant promotion, is making no more than $15,000 more than when they started.

If $15,000 over 10 years as a pay increase works for you, then stop reading now. While it seems like a lot to some, I promise you that money goes quickly. Apple’s new iPhone is supposedly going to cost over $1,000 and I haven’t met a trip to the grocery store that settles at less than $150.

You need to take control of your income. I left a job for which I was paid well. I had good benefits. Even if the company culture was strong, which it wasn’t, I couldn’t stay. I saw guys 10, 12, 18 years in making only slightly more than when they started. They were treading water for decades and after four years my legs were already tired.

Go where growth is part of the culture. Find a place that hires and promotes from within. My last job hired two outside people for top tier sales positions, ignoring the contributions of internal highly qualified producers.

Be a part of something that matters. This isn’t mandatory by any stretch, but consider this: doing a kindness for a stranger is the best anti-depressant available. Sometimes, even when you’re paid well, have a good culture at work, enjoy what you do… you look for more.

There’s two options, get involved, or join a  movement. Find an outlet for helping people – head up a non-profit event or two, work a soup kitchen line from time to time, volunteer to help those who need it. Another path to take would be to do what I did. Join a company whose mission is about giving back, not just paying out investors. When a great cause IS a shareholder, when the employees ARE shareholders, shareholder primacy starts to make sense.

Filed Under: Company Culture, Life, Personal Growth Tagged With: annual raise, motivating employees, retirement planning

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