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.
While 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.
Published or updated August 2, 2012.