If the annual budget shows that pay increases are to be an average of 3% for the year, it means that the spread of individual pay raises can be from 0% to 6% or more. Where you are within that spread will depend on a number of factors, some of which are:
- What has been your performance during the year? Are you a high performer? How is your performance measured? Do you and your boss agree?
- Where you are within the range? If you’re at the lower end of the range and a high performer, your raise should be higher than if you are at the upper end of the range and a low performer.
- Do you directly affect the performance of the unit? Those that directly add to revenue or reduce costs are more likely to receive higher raises than others.
- Is your organization’s philosophy “pay for performance” or are you on a “pay for length of service” program. If pay is indexed to your years of service and you receive pay increases at a predetermined rate each year, performance is less of a factor.
- Some organizations provide for reduced compensation but have above average benefits, like company paid health insurance, a high 401k match by the company, and so on.
- Other companies are just the opposite, where compensation has both high pay and terrific incentive compensation, but just adequate benefits. These are mostly high growth companies.
- There are other factors but we’ll stop here.
So, back to how your pay raise works.
One of the ways to gain insight into how your organization manages pay raises is to do your own research: “What is the percent target point that your organization pays, relative to the industries in which you compete?” In other words, each company competes against others in their industry but may have a target of paying as low as the 25th percentile or as high as the 75th percentile. This information will tell you if you have an aggressive pay program to attain and retain the best talent.
With all things being equal, lower paying companies within a competitive industry may find a higher turnover rate, as high performers leave for greener pastures. Some companies feel that people can be replaced easily. Higher paying companies on the other hand, may seek out higher performers, pay them better and attract, then retain them at a higher rate.
Implication to you? The success of your organization will affect your compensation. In a turnaround situation, you may be hired and paid extremely well, however the risk is also high.
Stable companies with slower incremental growth tend to have stable employment.
Implication to you? People in general tend to gravitate to the organization that more closely parallels their own philosophy and are comfortable with the pay practices.
Implication to you? Your company’s pay practice and management philosophy will directly and dramatically impact your total compensation over time.
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