Chilling Out Over Salary

In what seems like forever land, salary increase budgets for employers in North America have, over the past several years kept to a narrow range of 0-3%.

Salary increases (which collectively for an organization add up to  between 0- 3% of overall salaries) have ranged from 0-7% over the same time period.

Outside of salary increases related to job promotions, this means therefore that:

a) after-tax increases have ranged from 0-4.2% (using a top marginal income tax rate of 40%), and

b) after accounting for annual inflation, net real salary increases have ranged from negative 2% to positive 2.2% each year (assuming annual inflation at a steady 2%).

For an individual making $60,000 per year, this means that after taxes, they're likely making on average, an increase of $1000, or approximately $20 per week.

Hardly anything to get too excited about.

Yet with that said, handling of annual salary reviews is one of the things that causes employee engagement to decline the most.

It would be easy to suggest to all concerned, that they simply chill, since the net real after tax dollars (that which makes us wealthier), are frankly quite insignificant in most cases.

I think though that this is a case of our actually losing sight of what the real issues are.

If we solve these issues, employee dissatisfaction is reduced and employee engagement is increased.

So what are the two main issues to be solved:

i) Transparency ii) Fairness

Employees are not asking to be paid more than either the market is currently calling for nor more than what the employer is able to afford.

Rather, employees want to understand what the rules are for allocating the salary increases, and they want to know that these rules apply to all in the organization equally, including the organization's Executives.

By ensuring that Managers have clear and consistent guidelines that empower them and provide them with the flexibility to pay for performance, while still respecting the overall salary budget that they have to work with, and by communicating what these guidelines are to both managers and employees alike; the mystery and rumours regarding how salary increases are awarded, go away, and employee distrust of the process goes away as well.

By clearly stating that the same salary budget (i.e. 3%) and pay for performance guidelines that apply to the most junior employee in the company also apply to the Executives who are charged with leading the organization, employees feel that the organization is treating them fairly.

We should all chill out over salary increases until such time as salary budgets are of a size (i.e. 7-12%) to once again provide for meaningful differentiation in pay for different levels of performance. 

Adopting transparent and fair pay practices, can go a long way towards making this a reality.

David