Is the annual salary increase dead?

One tidbit that stuck out to me from our recent Movers and Head Shakers research was that 28% of business owners who saw growth over the last three years [Movers] said they don’t give raises. These are strong, healthy, growing businesses, and they don’t give raises at all! Yet, 98% of the non-growing companies [Head Shakers] that were surveyed gave raises. Interesting.

I don’t think the Movers were saying that they never change people’s compensation; it’s just that growing companies have more opportunities for growth in job responsibilities and promotion, and many companies increase salary at that time so that may be taking some of the pressure off of the annual increase.

evaluating employeesBut growing companies probably do view raises this way — if you are doing the same job year after year, producing about the same results, why should you get paid more? Yes, your salary is falling behind the market somewhat, but when inflation is low it’s happening very slowly.

Business owners of growing companies need more out of their team each year. As the company gets bigger, each person should contribute more, deal with more complex issues and face higher stakes with their decisions. If a team member isn’t able to grow with the demands of the job their stagnant pay may be a signal that they should look elsewhere.

But  it’s not just small companies that are abandoning the lockstep cost-of-living increase. Netflix doesn’t provide bonuses or raises to employees either. Each year, Neflix evaluates performance and compares each job to the market rate for similar jobs. Each salary is then adjusted to market (either up or down) for the following year. (Check out this terrific slide deck about many of the radical management practices at Netflix.)

This  is easy to do while there is low inflation and a weak job market. But it also belies a real frustration that employers have with salary increases and bonuses being taken for granted. Owners are asking for more value from employees before they offer more reward.

What do you think? Is the annual increase dead, or deserved?

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