Companies Rethink Across-the-Board Pay Raises

http://www.wsj.com/articles/companies-rethink-annual-pay-raises-for-all-employees-1471964521?mod=pls_whats_news_us_business_f

by protomyth • 10 years ago

38 56 10 years ago

wsj.com

sgt1012• 10 years ago

Since recruiting excellent people costs nothing and is extremely easy this idea makes sense.

Additionally team and corporate culture are valueless, so retaining these things is unimportant.

Finally we can observe that consultants and executives are the fundamental creative loci in our economy.

chris_wot2• 10 years ago

Lol!

VikingCoder• 10 years ago

An axiom of Poe's Law is that if you want to express sarcasm, you need to be explicit.

Otherwise, people may think you honestly believe what you say.

empath75• 10 years ago

To play devils advocate, I've quit a few jobs who offered small annual raises because other companies offered me a lot more money to leave.

Honestly a few percent raise a year for a competent programmer is insulting, assuming you're increasing your skill set all the time.

vonmoltke2• 10 years ago

Assuming you have the good fortune to live in an area where changing jobs is easy (or are interested in webdev).

duaneb2• 10 years ago

Honestly a few percent raise a year for a competent programmer is insulting, assuming you're increasing your skill set all the time.

This is wishful thinking. Your skill set (learning new technologies + critical thinking) is unlikely to improve over time. Furthermore, you're constantly competing against new graduates in a world where your "skills" are a generic commodity.

Good luck.

clifanatic3• 10 years ago

I'm almost positive he was being sarcastic. I hope...?

mgkimsal• 10 years ago

Honestly a few percent raise a year for a competent programmer is insulting, assuming you're increasing your skill set all the time.

Huh? Expecting raises of any sort from an employer is insulting to them, unless you're increasing the value you bring. There are loads of devs I know 'increasing their skills set' yet not bring any actual value to the business they're employed in. The two points can be quite orthogonal, and the business is really only going to care about what value you're bringing to the table.

gph• 10 years ago

"Additionally team and corporate culture are valueless, so retaining these things is unimportant."

Honestly I've never felt all that connected to any of the forced attempts to create a corporate or team culture where I've worked. I'd much rather be motivated by money.

Though I recognize that likely means I'm not an ideal employee.

chadgeidel• 10 years ago

I would argue any "forced attempts to create a corporate or team culture" signal poor culture. I've worked at "good culture" and "bad culture" places and the "good culture" places had events but they were never labeled as such - they were just "events".

sportanova2• 10 years ago

"These are you new values and reasons for being!"

Shocking that that doesn't work. And I don't understand how people take seriously the "need to be passionate about x industry". No, you just need to pay money and the employee needs to do acceptable work

raldi• 10 years ago

De-sarcasming your comment, I get "Recruiting people is expensive and difficult, and maintaining company culture is important, therefore this proposal is a bad idea."

However, I don't see how the conclusion follows from your premise. Are you saying this idea would lead to recruiting difficulties, or that it would increase unintended turnover? Are you saying it would destroy company culture because of employee departures, or in some other way?

stale20023• 10 years ago

Would you want to work for a company that has this policy? I certainly wouldn't.

sgt1012• 10 years ago

Thank you for replying and debating - it's good!

I think that this would increase the turnover of employees who are are not strongly motivated by reward vs. the current practice because the current practice is aimed at preventing reward from being a key issue. People join at a level that provides a lifestyle that they find liveable, they remain or try to upgrade. Those that remain are rewarded with the maintenance of their lifestyle and some small increments. If that goes then long term employees will see a decline of their lifestyle and likely will then be moved to churn.

In addition the provision of reward by bonus will increase competition between employees and corrode team relationships. That's fine for sales, where team is nowhere, but ruins everything else.

krisdol• 10 years ago

This article discusses the benefits of providing few significant raises to high performing individuals rather than a nominal raise to all.

From the employee's (my) perspective:

* If I get a small nominal pay raise, I might stick around for up to the rest of the year, depending on how recently I started at the company. I don't know if this is a good idea, but sometimes promotions and raises aren't on the same schedule.

* If I get no raise, I'll be leaving ASAP.

* If I get a significant raise, I'm more likely to stay stay until next year's raise.

Having nearly doubled my salary in a short time by "hopping" at good offers, there's little reason to stick around in companies that value manager bonuses over employee retention.

ryanSrich• 10 years ago

I imagine this is only possible in a limited number of locations. Job hopping in smaller markets is very difficult.

pasbesoin• 10 years ago

Additionally, in BigCo, metrics versus actual performance continues to be often a toss-up, at best, and not infrequently just wrong.

My stomach still clenches at the memory of managers greenlighting all the goals on their own performance reviews.

Basically, if they liked you, you "passed" your review. If they didn't, they'd find something or other to pick at.

The whole process was so weasel-ly, and in HR's pocket, that it was hard to find a place to start challenging it.

Manufacture paperwork to "substantiate" whatever result we've already picked.

P.S. If you start feeling this way about your own workplace, it is a primary sign to GTFO. Even if you are one of the "favored", if you're smart and a straight-shooter, you are not going to enjoy the dis-function around you.

clifanatic3• 10 years ago

Having nearly doubled my salary in a short time by "hopping" at good offers

Watch out, though, because there's a catch-22: if you hop too many times, you can end up being rejected for too many hops.

lochlan• 10 years ago

I have never seen this be a serious consideration in this industry. IMO that is a fairly "old school" outlook. Anecdotally I have never had a job for more than two years and it hasn't been an issue for me yet.

An exception to this would be someone who has had a lot of contract work without a lot of FTE, that is definitely a red flag.

stale20023• 10 years ago

That's when you start removing things from your resume!

Or just put down a large early timeperiod as "software engineer" without elaborating on it to much, and only focus on recent experience.

wuliwong2• 10 years ago

I agree. I realize that I'm in a field (software development) that is still a great market and this strategy might not apply everywhere but I do believe there are a lot of other industries where this attitude can still work. Most of my "non-tech" friends just don't try to look for other opportunities. I don't know the reason. Possibly my anecdotal experience is just full of outliers? Or is that in general, the software industry "culturally" breeds workers that value their own work more than the average worker. Or is it simply that as a software developer, I am sent requests from recruiters for new jobs on a near daily basis.

susan_hall• 10 years ago

"For most of us, yearly pay raises are a fixture of corporate life"

Was this article written in 1955 and then accidentally drawn out of the archives and posted in 2016? The annual pay raise died a few decades ago. There were countless articles about it. You can go back and re-read early issues of FastCompany, from the 1990s, where they talk about "you" the worker needs to make themselves essential to the company, because annual raises are dead and only real promotions bring real money any more.

And of course, at some point there emerged in the USA the odd habit of top managers, such that to get a pay increase an employee needs to quit and go elsewhere, or at least has to get a real offer from somewhere else, and only then will "your" company give you a pay increase, to match that competing offer.

chris_wot2• 10 years ago

Dunno about the U.S. but in Australua they are definitely a fixture.

gambiting• 10 years ago

UK here - agreed. I don't know anyone working at a corporation where annual raises aren't a thing, they might be small(3-4% if you aren't doing well on your performance review) but they almost seem mandatory.

dwc• 10 years ago

They are a fixture in the U.S., too, in my experience.

vonmoltke2• 10 years ago

Was this article written in 1955 and then accidentally drawn out of the archives and posted in 2016? The annual pay raise died a few decades ago.

This is the first year in my 14-year career I did not get an annual raise.

dragonwriter2• 10 years ago

The annual pay raise died a few decades ago.

AFAICT, despite the hype, it really didn't, it just became less significant.

You can go back and re-read early issues of FastCompany, from the 1990s, where they talk about "you" the worker needs to make themselves essential to the company, because annual raises are dead and only real promotions bring real money any more.

Its true that in private industry, reliable annual increases that are much greater than inflation (and so represent real advancement) are far less common than they used to be. They still happen in some places where people advance within broad pay bands without a change of position or title, so it isn't strictly the case that all real (significant) pay increases come from promotions, but its not a bad approximation.

But even so, annual nominal pay increases that are at least near or slightly higher than inflation seem to remain common in private industry.

ryandrake2• 10 years ago

I think it's safe to say that whether annual pay raises died or not depends highly on the company/industry/country. I'd say it's been a thing at maybe 50% of the (U.S.) companies I've worked.

ChemicalWarfare• 10 years ago

Everywhere I worked at in the past 20 years - from startups to fortune 50 companies this was/is a thing.

Large companies do this "by the book" with HR-imposed bell curve type quotas (that they are trying hard to hide) with ~80% of the employees getting an average rating/raise, ~10% getting below average rating/raise, "top" 10% or so - getting a higher but also capped raises.

Smaller/less "formal" companies tend to reward/"punish" (you're still getting a raise but it's small) based on individual contributions.

So yes this is definitely a reality of the "corporate life".

rileymat22• 10 years ago

One thing I missed is any mention of inflation. If you are doing a satisfactory job not deserving of merit or demerit, wages should still be adjusted.

andyfleming• 10 years ago

What if the larger economic climate in a country is worsening and increasing costs for both the business and its employees?

rileymat22• 10 years ago

Of course you will have times of economic trouble with no raises.

monknomo• 10 years ago

depends on if there is still inflation. I'd say the Weimar Republic had a worsening economy, but when you need a wheelbarrow of money to buy a loaf of bread, raises should probably be given, lest your employees become bakers...

qdog• 10 years ago

I have had some 0% years during the early 2000's. A couple times I've seen companies slash 5% across everyone to not do layoffs. Just nit happening right now in the US, enjoy the good times while they last!

luma• 10 years ago

Any year that the purchasing power of the currency in which you are being paid goes down, and in which you don't get a raise to accommodate that loss ("cost of living raise" or whatever), you have effectively been given a cut in pay.

I can't speak to other countries, but the USD is intentionally inflated as a matter of monetary policy and it has done so consistently in good times and bad for my entire adult life (I'm over 40)[1]. If the company is not doing well, and they choose not to give me a raise each year, that is still an effective cut in pay so long as the consumer price index is rising. Your reaction to that is yours to make, but you need to recognize it for what it is.

[1] https://en.wikipedia.org/wiki/Consumer_price_index#/media/Fi...

banach2• 10 years ago

The working class should similarly rethink annual pay raises and instead demand annual cuts in working hours.

ilostmykeys• 10 years ago

love it

banach2• 10 years ago

For a development of this idea, see https://www.versobooks.com/books/1989-inventing-the-future

st3v3r• 10 years ago

Why would bonuses, which are 1) Taxed higher than income most of the time, and 2) Not guaranteed to happen, be more of a motivator than salary?

dragonwriter2• 10 years ago

Bonuses aren't taxed higher. They are, when paid separately, subject to a different (flat) withholding rate, which is often higher than your average withholding rate and, when paid together, they are subject to a higher withholding rate than your average withholding rate because regular withholding rates are shaped by progressive tax structure.

They are actually just regular taxable income, and are taxed exactly the same as additional non-bonus income.

acjohnson55• 10 years ago

First of all, cost of living goes up gradually, so at the very least, it makes sense to have your satisfactory performers not literally lose purchasing power in their base salary year to year. Or if that's not compelling because a corporation doesn't concern itself with its employees' finances, at the very least, it should be tracking the market, which is liable to change from year to year.

When it comes to me, policy is whatever; at the end of the day, no matter how my comp package is arranged, I'll be looking after my bottom line. If I'm not happy, I'm confident in my ability to seek a better deal. I'd have to really believe bonus-based comp is likely to work out in my favor, at least on the timescale of a few years. Longer than that, it's not appealing, due to the lack of compounding of bonuses.

But I feel like as a developer, I'm a bit insulated from concerns of the mainstream labor market. I just worry that for people without a whole lot of mobility, this is just another step toward institutionalizing wage stagnation.

Moreover, managers are reluctant to increase base pay further because higher payroll costs could result in heftier prices for customers, says Tom McMullen, a senior compensation partner with Korn Ferry Hay Group.

That's rich.

jomamaxx• 10 years ago

Maybe they could give an x% baseline inflation increase, and then y% bonus for quality of work.

snuxoll• 10 years ago

That x% inflation increase is already what most employers have right now. I get a ~3% raise every year in November, my manager has the ability to +/- it to distribute the total allocation based on merit to an extent, but everyone gets roughly between 2.5-3.5% which keeps up with inflation - this is fairly standard practice from what I've seen.

a3n• 10 years ago

This probably works for C-levels, but for rank and file up to first and second level manager it's just more friction in the job search and recruiting areas. Because now, besides salary, you have to negotiate bonuses.

dunkelheit• 10 years ago

B.F. Skinner has demonstrated in his famous experiments that animals react much stronger to rewards that are highly unpredictable. Recently this principle has been applied with much success to the design of addictive online games. Time to apply the same principle to employee motivation?

ryandrake2• 10 years ago

If you want people to not always be looking around to hop to the next salary tier, then ideally people's salary should be ratcheted yearly to "what they could get elsewhere", not blindly based on some simplistic formula like starting * 1.xx^year + performance. Labor is a market just like any other service, and prices (compensation) are set by what the market can bear.

Companies Rethink Across-the-Board Pay Raises

Related Stories