The quality of a workplace raise, it so often seems, is in the eye of the receiver. 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 2019 is expected to be about 3.1%, the highest since 2008, according to professional services firm Aon's annual survey on U.S. salary increases, which is based on responses from over 1,000 companies.
Yet the amount that companies spend in their budget for so-called "variable pay" – including incentives and bonuses – dropped by its biggest margin since 2010. As a result, total cash compensation is actually expected to decline slightly next year, from 15.5% of payroll to 15.2%.
However, businesses expect to pay their best employees more, with an average raise of 4.6%, according to a separate survey by the advisory firm Willis Towers Watson. By contrast, workers with an average performance rating can expect only a 2.7% bump in pay.
Salaries Vary by City
The average performance-based raises don’t change significantly across different sectors or job types, but they do vary slightly. Next year, employees in sectors like education and transportation can expect a lower-than-average increase of 2.6% and 2.8%, respectively, according to Aon. Workers in construction are expected to see a bigger pay increase of 3.4%.
The average expected salary bumps also vary from city to city across the U.S. While most workers are expected to see increases in line with the national average, employees in two of California’s biggest cities will enjoy a higher-than-normal salary hike. The average worker in San Francisco will see a 4% wage increase, while the average employee in Los Angeles can expect a 3.7% uptick, Aon projects.
The Consumer Price Index – a measure of overall cost increases – rose 2.2% over the 12 months leading up to November 2018. So the average worker was only marginally better off than he or she was a year ago. And those who depend on bonuses as part of their compensation package may not keep pace with inflation.
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% to 20% 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 the salary you’re asking for.
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 a woman with an annual salary of $80,000 and a modest 1% salary increase. That means her base pay only inched up $800 – not enough to keep up with inflation. But if that employee also took home a bonus of $4,000, her total compensation would jump 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.
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 can be important ways to maximize earning potential in the long-run.
The Bottom Line
A 4% or 5% annual pay increase may not sound substantial, but in today’s environment, it's better than most.