Is a 5% Raise Enough to Protect Your Superstar?
July 23, 2008
In a word, NO. In two words, "H*** NO".
Of course, you know that. But, even if you and the rest of the world understand the risk, most of us are
still plodding along with a merit system that doesn't protect stars. Each year, we see the details regarding merit pay from World at Work, via their annual salary budget survey. The 35th version of this annual survey (which includes over 2,700 participating organizations) was recently released, showing the following:
-The 2008 actual average increase in salary budgets was 3.9%, and the survey projects a 3.9% increase again in 2009. Good news in a bad economy.
-For the third consecutive year, participating organizations are reporting that, on average, 91% of employees can expect to receive an increase in their base pay this year.
-High performers can expect raises of over 5% while below average performers can expect 2% or less.
Good news on the salary budget growth front, and that most companies are still doing merit increases in a down economy.
As for the average increase for high performers, 5-6% is nice, but it won't protect your best talent. Remember that the best time for employees to get a double digit increase is when they accept an offer to leave your company, and many recruiters actively do the math to figure out what type of offer it will take to steal your star.
So, when I read this, I'm thinking not about the masses. I'm thinking about the stars, and looking in the sofa for spare change to make them feel different.
Ann Bares (Compensation Force) posted on these World at Work findings about a week ago and I asked her if the findings were adjusted for inflation. In a flash, Ann had World at Work Research Manager, Alison Avalos, on the line and answering the question.
Apparently, these numbers are NOT adjusted for inflation, so if you are getting a 3.9% increase, chances are you are (at best) staying even, at worst you are actually LOSING money in real spending power.
So when handing out raises consider this question; what is the real dollar value of the increase?
Posted by: Totally Consumed | July 23, 2008 at 09:12 AM
This issue is old as the hills. I'm sure that if the Pharaoh paid his slaves, he would have been faced with the same problem.
When there were double digit raises given as the norm in Silicon Valley in the 70's we had the same issue with inflation and rewarding the super stars.
The real issue, to me, is that Managers, too frequently, aren't willing to differentiate enough between the stars and the rest of the pack, and... he is afraid to give a zero salary increase to Mark Mediocre. To add to the problem, Mr. Mediocre and his compatriots typically view <3% increases as insults.
With Mark Mediocre and his friends unhappy, the super star unhappy and the company expense incurred from the annual salary budget - it is a lose-lose.
I suspect that the companies who really "Pay for Peformance" are very rare.
Posted by: Ron Ulrici | July 23, 2008 at 09:59 AM
Maybe it's must not really be a problem at all. If it were a problem, free market competition would have forced companies to pay more to their 'Super Stars' a long time ago.
Maybe the problem isn't that 'Super Star' get lousy raises, rather maybe the problem is that too many mediocre employees think they're Super Stars when they're really not.
Posted by: Totally Consumed | July 25, 2008 at 12:34 PM