The quality of a workplace raise, it so often seems, is in the eye of the beholder. The same bump in pay can leave some with a big grin, while causing others to wonder why they didn’t get more. This raises the question: what exactly is a “good” raise?

To answer that, let's put things in perspective. The average pay raise in 2018 is expected to be about 3 percent, up slightly from 2.9 percent in 2017, according to Aon Hewitt's annual survey on U.S. salary increases, which is based on responses from over 1,000 companies. In addition, the amount that companies spend in their budget for so-called "variable pay" – including annual compensation and bonuses, is expected to dip to 12.5%, the lowest level since 2013.

However, businesses expect to pay their best employees more, with average raises of from 4.5 percent to 5 percent, while low performers are likely to get a 1 percent increase, Sandra McLellan — a compensation practice leader with Willis Towers Watson — told Kiplinger. Employees who think of themselves as stars within the organization can use these benchmarks for annual raises.

Salaries Vary by City

The average performance-based raises don’t change significantly across different sectors or job types, but they do vary slightly. Employees in sectors like education, construction/engineering and medical/devices can expect a lower-than-average increase of from 2.7 percent to 2.8 percent in 2018, according to Aon Hewitt. Workers in the accounting/consulting/legal fields are expected to see the highest increase, at 3.3 percent.

The average expected salary bumps do vary from city to city across the U.S. While most workers are expected to see increases in line with the nationarl average, employees in Houston, New York City and Philadelphia will enjoy higher-than-average salary hikes of from 13 to 14.7 percent, Aon Hewitt projects. (See also: Which Income Class Are You?)   

The Consumer Price Index – a measure of overall cost increases – ticked up just 2.2 percent in the 12 months ended November 2017. So if your base pay climbed 3 percent, you are actually only 0.8 percent better off than you were 12 months ago.

The Effect of Job-Switching

With few exceptions, maximizing your earnings over a long period of time usually means changing jobs rather than staying in place.  

It used to be that jumping ship meant landing a salary 10 percent to 20 percent higher than your previous one. While increases of that size aren’t as widespread as they used to be, switching jobs is still the most common path to the best pay raise. 

If you stay at the same organization, your annual increases may be restricted by your current base salary because companies have a narrow percentage range within which they can boost your pay.

But if you’re negotiating with a different firm, you’re not bound by those restrictions. The key is to prove that you’re worth what you’re asking. 

Other Forms of Compensation

When sizing up your wage, bear in mind that an uptick in base pay isn’t the only way that companies reward their employees. In some cases, you may actually fare better with a generous bonus instead of a big raise.

Take someone with an annual salary of $80,000 and a modest 1 percent salary increase. That means their base pay only inched up $800 – not enough to keep up with inflation. But if that employee took home a bonus of $4,000, their total compensation jumped 6 percent (1 percent base-pay increase plus 5 percent bonus). Based on nationwide figures, this reward would have been better than most top-performing employees.

Also of note, a significant number of companies are now emphasizing non-financial rewards such as career-development programs. While these opportunities may not increase your bank account in the short-run, they are important ways to maximize earning potential in the long-run.

The Bottom Line

A 4 percent or 5 percent annual pay increase may not sound substantial, but in today’s environment, it's better than most. 

 

 

 

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.