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The return of the general increase?

July 17, 2015

By Mary Corrado, courtesy of SBAM Approved Partner ASE

I remember it from the early 1990s when I first joined the workforce. But the “general increase” had been standard practice long before that. Here is how it worked: At salary review time companies might budget 7% for salary increases; they would designate some amount of that (say, 2%) as a “general” increase. Then they would be able to work with the remaining amount to give “merit” increases to individuals that would top out at an additional 5% for top performers. Everyone not in danger of being fired got the 2%, which is what made it “general.” People came to regard the general increase as a cost-of-living adjustment—in other words, nothing to get excited about because it wasn’t really an increase.

I’m wondering if we haven’t, for all practical purposes, gone back to those days.

As I look at the results of ASE’s 2015 Salary Survey I see that it once again confirms the dominance of the 3% salary increase. Most people get that amount; top performers might get 4%, and those not performing up to standard might get somewhere from 0-2%.

Unfortunately, managers worry that 4% just doesn’t send the message that someone is a top performer. It may be twice as much as 2%, but in dollars and cents it hardly makes a difference.

Bonuses, on the other hand, have gone up as a percentage of salary from last year, from 9.5% to 10.35%. This suggests that managers are relying on contingent pay—bonuses, mostly—to reward their strongest performers. All well and good. But bonuses are typically one-time payouts. They do not go into base pay and compound future base pay increases.

And for how many years now has that been the case—10? 15? Think about it—a large percentage of our current workforce has never known what it feels like to truly grow their income while staying in the same job. It’s no wonder they look for different jobs at different employers. It’s the only practical way to achieve salary growth.

And then I read a press release from Challenger, Gray and Christmas, which argues that this is the year that things will finally change. It cites data about job growth from the Bureau of Labor Statistics along with some non-statistical factors to support its argument.

First, job growth: The Great Recession ended a little over five years ago. Since then the economy has added new jobs at the rate of 182,500 per month. In the five years before the Great Recession, the economy, which was expanding, averaged only 147,000 per month. And the pace of job growth now is even faster; in the last year the average has been 250,000 new jobs per month. But in those five years before the Great Recession, the single biggest month was only 239,000. It means that there are many more jobs being pursued by fewer people than were pursuing them a few years ago. That will put pressure on existing salaries as companies pull out all the stops to try to hold onto their people.

Then, other factors: Because of new SEC rules, publicly-traded companies now must report the salaries of their CEOs compared to the median salaries of their workers. The gap between the two will be out there for all to see. Some of those companies are “taking steps” to close the gap. These are the national companies that effectively set the pace for salaries in smaller and mid-size companies.

Lastly, the article notes that there are now numerous websites (e.g., Payscale, that job seekers can access to find benchmark salary data and accurate cost-of-living data. It means that they can walk into salary negotiation meetings much better armed than they ever did before.

Personally, I have had the feeling that we have been in a “general increase” rut for some time now. But it may be that we will finally begin seeing it change this year.

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