Are Annual Raises Dead? Only If You Don’t Want to Gain a Competitive Advantage

An article last week from CNBC, with data from Towers Watson and Aon Hewitt, showed that the annual pay raise is essentially dead (and in Towers Watson’s case, bonus pools will also be underfunded).

The data apparently shows that we will now deliver base pay as a flat amount. Pay increases will come from incentive plans — if they are funded.

So, let’s take a moment and give a fond farewell to a method of pay that has existed for as long as people have been paid.

But thankfully, we live in America, the land of the free and the home of zombies, werewolves, vampires and tons of other things that come back from the dead! On top of that, Halloween is just a couple of weeks away, so we can depend on being frightened and then fed something sweet.

How to compete in the land of no raises

In a world of no raises, creating a competitive pay program should be insanely easy.

All you have to do is start giving people raises.

In other words, don’t follow the data. Follow your brain. We are not zombies who must blindly follow each other.

Don’t make pay increases something that only occur on the occasional blue moon. Create a program that does for your employees what should be done. Have a pay philosophy that drives your unique value proposition instead of one that is driven by the uninspiring notion that “everyone does it.”

Don’t charm your recruits and employees with fantastical stories then drain them of their life force when they sign on. Use everyone else’s lack of imagination and foresight to your advantage.

Give raises when others don’t and crow about it from the top if the nearest tree silhouetted in the moonlight.

Unfortunately, we live in a country where many people will read about the death of annual raises then decide to make it come true. Heck, we have multiple ghost and Bigfoot hunter television shows! Many will believe almost anything. Don’t be fooled.

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Too many executive will embrace “no raises”

Too often we, or our executive bosses, jump on data like this as a way to justify limiting pay even when productivity or achievements are growing. You should instead use the “middle’s” lack of imagination or motivation as your competitive advantage.

Apparently over the next year or two, all you need to do is give your people basic raises to crush the competition.

Imagine if you gave reasonable (or even good) raises and did ALL of the things that you know are important (communicate, motivate, manage, etc.) It looks like you may end up being unstoppable while attracting and retaining the people you really want.

Of course, there is always the possibility that the predictions made from the data are simply wrong and you should continue to follow your own philosophy and structure.

What do you think? Are annual raises dead or is the data dead wrong?

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

Dan Walter is the President and CEO of Performensation, an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Contact him at dwalter@performensation.com.

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