Salary Secrets: What Is the Average Raise Percentage?

The quality of a salary is in the eye of the receiver, whether that's how much you're entitled to or when you should ask. That same bump in pay can leave some with a big grin on their face while causing others to wonder why they didn’t get more.

So if you've built up the courage to ask your boss for a raise, what should you do next? This raises another very important question: What exactly is a good raise? Keep reading to find out more about salary increases and what factors affect compensation.

Key Takeaways

  • Make sure you're prepared if you're going to ask your boss for a raise.
  • Pay increases tend to vary based on inflation, location, sector, and job performance.
  • Most employers give their employees an average increase of 3% per year.
  • Consistent job switching may have an impact on the rate at which your salary increases.
  • Your paycheck shouldn't be the only thing on your radar, so don't forget to consider benefits and other forms of compensation.

Average Pay Increases

The COVID-19 pandemic caused huge disruptions to the global social and economic systems. Corporations changed the way they do business, people began working and going to school from home, job losses mounted, and the government had to step in to help pick up the slack. So let's put things in perspective, at least when it comes to salaries and raises.

CNBC reported that pay raises didn't match the increases in the cost of living during 2021. But that is expected to change in 2022. The Conference Board expects compensation costs (which generally include salaries, raises, and benefits) to jump 3.9%. This is the highest level reported since 2008. The organization updated its earlier figure of 3%, which it reported earlier in 2021. This boost is being driven by higher inflation and more people in the workforce.

A separate survey conducted by Willis Towers Watson showed that many companies planned on offering their employees larger raises in 2022 while only 3% planned to halt raises altogether for the year. The study surveyed 1,220 different employers between April and June 2021 and found that raises would reach pre-pandemic levels.

According to WTW, corporate executives, management, professional employees, and other support workers could expect raises as high as 3% while salaries would increase by 2.8% for production and manual laborers. The highest salary increases were projected for pharmaceutical employees, to the tune of 3.1%. Retail companies estimated the lowest amount of increases, with salaries projected to rise by 2.9%.

If an increase in your monthly salary isn't possible, you may be able to negotiate other forms of compensation, such as paid vacation, paid health care, and others.

Factors that Affect Raise Percentages

Pandemics and special circumstances aren't the only factors that can hurt your chances of getting a raise. Here are a few other factors that often prevent companies from increasing their employees' salaries.

Inflation

Inflation is one of the biggest factors that affect people's compensation. Put simply, this is the increase in prices within the economy as a whole. Although it seems negative, moderate inflation is a normal part of the way the economy functions. But it can be detrimental to people when it rises too fast.

Consider the situation in December 2021, when the Consumer Price Index (CPI), which measures overall cost increases in the economy, rose 0.5% from the previous month and 7% from December 2020. When you remove food and energy prices, the index rose 0.6% from the previous month and 5.5% from the previous year.

When prices increase on this kind of scale, one dollar doesn't go nearly as far. People generally expect to get paid more in order to keep up with rising prices so they often rely on pay raises. But that may not always happen as costs for corporations also rise. It's important for you to review your compensation package and discuss your situation with your employer.

The length of time you've been at your job can impact your ability to get a raise. Most employers give their employees a raise after the first year and each year thereafter. According to a CNBC report. pay raises increased between 2% and 3% since 2010.

Location

You probably know the saying "location, location, location." That doesn't just apply to where you should set your real estate goals. It also has a bearing on your starting compensation as well as how much your salary bumps up.

According to the Bureau of Labor Statistics (BLS), wage and salary rates increased 4.6% between September 2020 and September 2021. That category increased at a pace of 6.5% in Los Angeles. But wages and salaries increased by only 3.3% during that period in San Jose.

But what if we leave California altogether? Here are changes in salaries and wages for the same period in the following municipalities:

  • Detroit: 2.7%
  • Boston: 4.2%
  • Seattle: 2.5%

Job Sector

The average performance-based raises don’t change significantly across different sectors or job types, but they do vary slightly. The BLS regularly updates employment costs for civilian workers, private industry, and government workers at the state and local levels. These costs include overall compensation, wages and salaries, and benefits.

For the 12-month period between September 2020 and September 2021, the BLS reported salary and wage costs increased:

  • 4.2% for civilian workers
  • 4.6% for private industry workers
  • 2.4% for state and local government workers

Job Performance

How you're compensated depends on how well you execute your job duties and responsibilities. So if you meet or exceed your goals, you may be entitled to a raise. Incremental increases in salary, which are commonly done on an annual basis, incentivize employees to work hard(er) and stay with their employers. Pay raises that are based on your job performance are called merit increases.

Employees who meet their goals and meet the company's expectations are generally entitled to a 3% increase, which is the national average. Some employers may only offer a nominal increase of 2% to some workers while others may receive a jump of 5% or more.

If you want to ensure that you're in the running for a merit increase, ask your current or prospective employer and read up about your compensation package in your employee handbook or employment contract. When it comes time to ask for a raise, your employer may want you to back up your argument, so make sure you document all your achievements and keep track of how competing companies are compensating workers in the same position.

People who depend on bonuses as part of their compensation package may not be able to keep pace with inflation.

The Effect of Job Switching

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% to 20% higher than your previous one. While sizable increases 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 pay because companies have a narrow percentage range within which they can boost your pay. But if you negotiate with a different firm, you won't be bound by those restrictions. The key is to prove that you’re worth the salary you want.

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.

Consider someone with an annual salary of $80,000 and a modest 1% salary increase. That means their base pay only increases by $800, which probably isn't enough to keep up with inflation. But if that employee also takes home a $4,000 bonus, their total compensation jumps 6% (1% base-pay increase plus 5% bonus). Based on nationwide figures, this reward would have been better than what most top-performing employees would receive.

Keep in mind that 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 can be important ways to maximize your future earning potential.

How Much of a Raise Should I Ask for?

How much you ask for depends on how long you've been with your employer and your role with the company. It's always a good idea to ask for anywhere between 10% to 20% higher than what you're making right now. You may be able to ask for more based on your performance, length of time with the company, and other factors. Make sure you come prepared when you negotiate your raise and be confident. If your employer rejects your request, you can always lower your target.

When Is the Best Time to Ask for a Raise?

The best time to normally ask for a raise is during your performance review. Most companies hold meetings with their employees to discuss their performance at the end of the year, so that's always a good time to see whether you're able to negotiate a raise. But if you feel that you've made some stellar moves in your position, you may be in a position to ask for an increase before or after your review.

How Long Do You Need to Work at a Company Before You Ask for a Raise?

It's always a good idea to wait at least six months before you start asking for pay increases. This minimum time-frame allows you to establish a track record in your position and demonstrate the skills and qualities you bring to your job to your employer. But remember, you're more likely to get a raise after your first year.

The Bottom Line

An annual pay increase of 3% may not sound substantial, especially given what's been going on in the world. But in today’s environment, it's better than anything. Remember that over time, relatively small raises will compound and may very well result in a very nice salary.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. CNBC. "How inflation is changing the 2022 annual employee pay raise equation."

  2. The Conference Board. "2022 Salary Increase Budgets Are the Highest Since 2008."

  3. WTW. "U.S. employers planning larger pay raises for 2022, Willis Towers Watson survey finds."

  4. U.S. Bureau of Labor Statistics. "Consumer Price Index News Release."

  5. CNBC. "How inflation is changing the 2022 annual employee pay raise equation."

  6. U.S. Bureau of Labor Statistics. "Changing Compensation Costs in the Los Angeles Metropolitan Area – September 2021."

  7. U.S. Bureau of Labor Statistics. "Changing Compensation Costs in the San Jose Metropolitan Area – September 2021."

  8. U.S. Bureau of Labor Statistics. "Changing Compensation Costs in the Detroit Metropolitan Area — September 2021."

  9. U.S. Bureau of Labor Statistics. "Changing Compensation Costs in the Boston Metropolitan Area – September 2021."

  10. U.S. Bureau of Labor Statistics. "Changing Compensation Costs in the Seattle Metropolitan Area – September 2021."

  11. U.S. Bureau of Labor Statistics. "Employment Cost Index Summary."

  12. Indeed. "How To Earn a Merit Increase at Work (With 6 Steps)."

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description