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The Average Raise Next Year Will Be 2.9 Percent

This article was written by in Career and Work. 15 comments.

According to the U.S. Compensation Planning Survey and research by the compensation consulting firm Mercer, companies plan to offer employees an average pay raise of 2.9 percent. While Mercer hasn’t announced this result in a press release as of today, CNN is reporting this information, calling this an increase from actual pay raises in 2011. The actual pay raise in 2012 has apparently not been calculated yet. CNN says this is an increase from 2011, in which the average employee pay raise was 2.7 percent, but Mercer’s own website says the average raise in 2011 was 2.9 percent — the same as the prediction for 2013.

Moreover, Mercer’s own website announced their prediction for 2012 as 3 percent. While CNN is touting this report as an improvement, it seems to be the opposite. Raises are predicted to be the same as they were in 2010, down from the actual raise measured in 2011.

Board roomWhile we can nitpick the details and wonder whether CNN just got it wrong or if Mercer’s own information is self-contradictory, but either way you look at it, a 3 percent pay raise is nothing to cheer about. Mercer points out that star employees, the “top 8 percent” of the workforce, will receive raises well above the average, while average employees will receive raises the average or less.

While inflation will be lower than 3 percent in 2012, this is not a good benchmark for comparing salary. Receiving pay increases that match or barely beat inflation is better than nothing, but there should be no pride in comparing a pay raise with the rate of inflation. Many ongoing costs in a household increase each year at a rate that far outpaces inflation. Health care costs increase each year, and on top of these increases in the total cost, employers often scale back their subsidies. It’s not unusual for the cost of college tuition to increase 10 percent or more year after year.

A typical salary increase may cover most if not all of the increased cost-of-living expenses in nominal terms, but when salary increases don’t keep pace with the cost of living, a smaller percentage of income will be left over for saving for the future, investing, and non-essential expenses like vacations. This is bad for personal money management.

Corporate motivation specialists will be sure to say that an employee who doesn’t receive the raise he would hope for has no one to blame but himself. We are all in charge of our own destinies. If we want to receive the recognition we deserve, we must fall into that top 8 percent of the workforce, regardless of the method employers implement to measure, rank, and rate their employees. Of course, when you’re dealing with an employer, there is much beyond the employee’s control. You could be in that top 8 percent but still not receive a raise high enough to cover the ever-increasing costs of living.

If you’re dissatisfied with your pay raise, there are two paths you could take. Neither path is a guarantee of success, but you may find that one path has greater potential.

  • You could work harder. The top 8 percent work more hours, work more efficiently, and never say, “That’s not in my job description.” Allowing yourself to be used by your employer for whatever purpose they choose and excelling in every assignment can make you stick out among a field of average employees, but the strategy can backfire if your employer begins to think that they can push you around and give you menial tasks without push back.
  • You could be more visible at your company. Make sure you appear in meetings frequently with those who make your compensation decisions. Provide great insight into the company’s opportunities and challenges. Spend social time with your supervisors outside of the office.
  • Look at the other star performers and emulate their strategies.
  • Campaign hard for financial rewards of your achievements. Schedule monthly updates with your supervisor to keep her apprised of your achievements so there is no question about whether the work you performed can justify above-average pay increases.
  • Seek employment elsewhere and use any offers as leverage in negotiations with your boss if you’re ready and willing to walk away from your current job. If the job market is still perceived as being unfavorable to job hunters, this could be a difficult strategy, but it does make actual competitive offers that much more important.

The above is one path you could choose if you’re dissatisfied with the current climate for employees. And you should be dissatisfied if you’re receiving just the average. Relying on 3 percent pay increases every year throughout your career is not a way to build wealth. An average stating salary with average pay increases each year, even with the occasional higher salary bump as your take on new jobs, will hardly even get you to retirement unless you are able to save a higher than average percentage of your income.

There is another path to take, but it is more risky. Leave the corporate world behind. You don’t want to rely on others to make your compensation decisions. Though it isn’t for everyone, starting your own business puts these decisions in your hands. You are the boss, and can’t blame anyone else at your company if your salary isn’t keeping up with the cost of living.

It’s not a perfect solution. Many businesses fail. You’re now relying on your business to generate revenue, and that could mean finding clients. If you start a business that doesn’t fulfill a need, you may find it difficult to pay yourself anything close to what you may have earned as an employee. The business could be the victim of an unstable economy. As an employee of a larger company, you can count on a somewhat stable salary, even if it isn’t as high as you’d like. If you own your own small business that is affected by the overall economy, you may not be able to generate a stable salary year after year.

With a growing business, the profit levels are unlimited. And not only can you draw a salary from your own business, you have equity in the business itself, an asset that can be sold down the road. That drastically changes the face of retirement.

There is a significant amount of risk in starting your own business, but for anyone who has the drive, talent, and resources, it can be the best way to leave the madness of worrying about small salary increases behind.

Photo: Hotel du Vin & Bistro
Mercer, CNN Money

Published or updated August 2, 2012.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 15 comments… read them below or add one }

avatar 1 Anonymous

I’ve realized that if someone is unsatisfied with their salary they need to let their boss know. If they aren’t able to get the raise they want, then they should consider leaving. There’s no reason to settle for whatever you’re given if you truly believe you deserve more. However, you can just expect a 6% raise each year for sticking around. If you’re performing the same tasks as last year as the same efficiency and same quality, then maybe you don’t deserve a 6% raise. However, if you’re doing more work and doing it better, then there’s some raise deserved.

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avatar 2 Anonymous

I’m a business owner now; in the past I tended to walk when a pay rise was slow in coming or non-existent. But times change, don’t they? These days, if I was still an employee I would be wary of jumping ship at the first “no” or whiff of a 3% rise. For smaller businesses, operating in competitive marketplaces in difficult climates, it isn’t always easy or possible to hand out significant rises.

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avatar 3 William @ Drop Dead Money

I’ve spent most of my life on the other side of the desk, i.e. doing the hiring, firing and determining pay of people in my companies. Flexo makes some great points. Identifying and emulating the stars is a great one. Befriending them and riding their coattails is a good addition to that point.

Pursuing visibility is also very important. If you’re good, let other people notice it by themselves.

There are other things you can do:

– Get as much training as you can. In the end, you’ll earn what you’re worth. Increasing your worth is your responsibility.

– Certain industries pay better (pharmaceuticals, for instance). Keep that in mind when looking for the next job

– Work just a half hour late every day. Not enough to be a workaholic and unbalance your life, but enough to be noticed. That’s usually the time bosses walk the hallways. This is an excellent opportunity to get to know them and be seen to not be a clock watcher.

– Volunteer for assignments outside of everyone’s job descriptions. You learn more and meet more people in the organization. Visibility is a big key.

– Visibility also comes from participating in industry newsletters, blogs, conventions, open houses, trade associations, etc. In the end, it’s who knows you which gives you the competitive advantage.

Flexo’s comment about leverage from a competitive job offer is the most powerful and persuasive, but… You can only use that once every four or five years. If you pull that stunt every year, your boss will let you go, no matter how valuable you are. And if your resume has a job change every year that looks bad. So you need to know when to use that strategy for maximum effect.

Ultimately, though, I’m not convinced pushing for maximum compensation is always the best strategy. For one, being the highest paid person in your department paints a bulls eye on your chest when thoughts turn to layoffs. Secondly, if you get a reputation for being a money hound, others sour on you and you lose support.

In the end, the labor market is a fairly efficient one and you’ll end up getting paid what you’re worth. It’s more important to work on your contribution than the actual reward. The reward will follow – it usually does…

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avatar 4 Anonymous

You’re leaving out a whole bunch of people — Those working at jobs that don’t give merit raises. The Military, most government workers, union folks, and many others receive across-the-board raises and extra face time, efficiency, and overtime won’t do anything to improve their raises. The average pay raise numbers are skewed because across-the-board raises are driven by inflation and the “keeping you up with inflation” argument rings true to those in that situation. Sometimes finding other work or advancement is the only solution.

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avatar 5 Anonymous

As a federal employee who hasn’t seen a pay raise since 2009 and has no prospects of a future pay raise, I’d be absolutely thrilled with a 3% raise. Heck, I’d be happy with the 0.5% raise proposed by Obama for 2013. Leaving for greener pastures isn’t a viable option for a 61 year old whose only post-college job has been with the government.

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avatar 6 Anonymous

I see nothing wrong with getting an ‘average’ raise most of the time. You can’t get promotions or big fat raises most years. So most years you will get average raises and thats just fine. Why would an average performer expect more than 3% raise? ~92% of us are not going to be in the top 8%. However, if you *never* get a good raise and never get promotions then thats a problem. You ought to aim for some promotions. With the promotions you should get a good raise. But if the economy sucks, you aren’t in the top ~8%, and you ‘only’ get a average 3% raise then thats not failure at all and nothing to complain about.

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avatar 7 qixx

With my annual review coming up in about a month this will go into my planning toolkit. I disagree with Jim. From my experience people either want to be above average or don’t care. Those that don’t care are mostly the below average employees and below average pay raises (or lack or raise). So of those trying to be better than average most are failing to do so. When i’m in that group it is a problem for me.

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avatar 8 Anonymous

I’m not saying you shouldn’t care about your raises or performance nor am I saying that you shouldn’t try to be above average or that you should be OK with below average results.

Here is how it works at least at my company. The top 10% get a fat raise. The bottom 10% get a written warning about their bad performance and a 0% raise. The middle 80% gets a 2-3% raise. If you get in that middle 80% range then thats normal for most people. An ‘average’ raise of 2-3% is not a ‘bad’ thing. Of course you don’t want ‘below average performance’. Of course everyone should try to be better than average and try to get a fat raise. But if you don’t get a top 10% performance level and don’t get a fat raise every year year after year after year then thats not failure and most of us should not expect fat raises due to the top 10% of performances.

90% of us can’t and won’t be in the top 10% in any given year. Thats not failure. >>90% won’t be in the top 10% for several years in a row. That not failure either.

The expectation that you should get a big fat raise EVERY year is simply unrealistic for all but the most fabulous super achievers. (Unless you work amongst a bunch of slackers.)

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avatar 9 qixx

Turns out my company has set the max raise this period (not sure if this changes quarterly, every 6 months, or yearly) at 4%. To get that 4% you must hit a rating of Above Target. Many managers feel there is no such thing as an Above Target employee.

I managed to beat that 2.9% average. But not by much. Think pennies per hour difference.

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avatar 10 Anonymous

I agree with SteveDH’s first opinion. I felt left out since I’m not in business per se. The article lacked a theme, no cohesive arguments, and disorganized thoughts.

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avatar 11 Anonymous

I’m thinking I’ll probably get 2% this year from everything I’ve heard from being in the accounting department. Do I want more? Heck yes! But it is my first year at a new job and I should get a promotion in a couple years that will be a hefty bump (I hope). To counter that though I have started my blog as a side gig and hope to earn more than 2% of my wages from that… diversity and owning your own business… hopefully they pay off.

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avatar 12 Donna Freedman

Wow, that’s depressing. When I was still working at the newspaper money was tight (and this was back in the ’80s and ’90s, long before the Internet got print journalism by the shorts) and raises were 2% to 3%. Even though the cost of living was high (this was Alaska) we accepted it because, well, what else could we do? It wasn’t as though there were lots of newspapers up there eager to hire us away.
But to learn that people are still getting that little…Depressing.

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avatar 13 Anonymous

3% is better than 0%, but I think if you have solid quarterly or annual reviews you can push for 5%.

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avatar 14 andrea1983

Many ongoing costs in a household increase each year at a rate that far outpaces inflation. no pride in comparing a pay raise with the rate of inflation.

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avatar 15 Anonymous

It’s amazing what can happen if you just ask. Have confidence when you sit with your manager and let them know what you’re thinking.

On a sidenote, I wonder how much time was spent on this research. If someone were to quickly ask me, “hey what do you think the average raise will be this year?” I would say 3%. They could’ve paid me a whole lot less.

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