The Devils of Salary Raise…

…and how to deal with them!

Everyone feels they are overworked and underpaid! A very common demand to a manager is “I need a better hike!”. In this article, I will try to explain how salary hikes work and share my thoughts for all hike-yearners!

First, lets understand how companies give salary hikes

1. The budget: Hikes are given based on budgets. They are limited by percentage (say 6%) and are enforced company wide. A manager gets budget proportionate to his team size and the total salary the team earns. For example: A manager has 10 people reporting to him/her and the total annual salary of all his/her team members is 1000 rupees. If the budget is 6%, money available with manager for team is 60 rupees. The manager needs to divide the 60 rupees amongst all his team members.
2. The distribution: Based on your performance, you would have received a rating. Lets say the company has 3 ratings: Misses expectations, Meets expectations, Exceeds expectations. Lets call them Misses, Meets and Exceeds for short. Higher rating gets more budget for hike. Thus the distribution may be 9% for Exceeds, 6% for Meets and 3% for Misses. Thus the average comes to the 6% which is the budget.
3. The psyche: A manager wants biggest rewards for his/her best performer(s). So he/she will try to give MORE than the 9% for “Exceeds rankers” of the team. Where is that money going to come from? You guessed it right?—?the lower performers. So, the actual distribution will more likely be 11% for Exceeds, 5% for Meets and 2% for Misses. Thus he/she is still within the budget but is rewarding exceptional performance.
4. The exceptions: Some managers may be running super-high-productivity teams and will get a budget higher than the 6%?—?thus benefitting everyone in the team. But remember?—?that extra money is coming from some not-so-great performing teams’ budget. Also, some times, there maybe special funds for people getting promotion or really low paid high performers. But these budgets are really really really small and available only on exceptional basis.

Now, lets hear a few arguments from team members*

• I am really lowly paid as compared to my friends in other companies. Can you give me a bigger hike this time?
• I didn’t get any hike last time! Can you please provide me bigger hike to compensate
• I was told that my salary will jump in my first appraisal post joining, so I settled on a lower salary. Can you help?
• My previous manager had committed (verbally!) that he will give me extra hike next time. Can you help?
• Cost of living has increased significantly/inflation has shot-up. I need more money!
• so on and so forth…

But the reality is?:

Budgets are created at company level and these individual situations are not factored-in separately. Your manager can’t use any of these arguments to get you an additional hike. Your argument may be fair and your situation justified, but there isn’t much a manager can do beyond his budget limitations.

The primary criteria that decides your hike is your performance in the time period between last appraisal and this appraisal. Everything else is secondary or immaterial.

Additionally: It is very important to understand that accomplishments expire at appraisal! Your great achievements for a previous appraisal cycle can’t fetch you extra rewards in this cycle. You need to consistently outperform to get that extra hike every single time.

What does this mean?

1. Your rating will predict your hike: Many companies will tell you the ratings in advance of your hike announcement. Many managers will have performance review discussions with you way before hike numbers are announced. If you rating/feedback is not-so-great, don’t keep any hopes on getting a big hike.
2. If you are dreaming of a 30% hike in a 6% budget, its just a dream. You should read-up/ask your friends about range of percentage hikes they are seeing. It will be a good indicator for your own hike.
3. If you are the unfortunate good performer with low beginning/base salary?—?your salary gap will only be fixed incrementally over many appraisal cycles. Be prepared to wait.

So, how do you deal with the devils?

1. Start Well?—?Negotiate a good starting salary?—?it is imperative that you start with a good base salary in your new job. If you have NOT negotiated hard, you are damned with low salary for many more months/years. Hence, do your homework, lookup glassdoor, get your friends to talk about their salary ranges ;) Ensure that you are starting off on a good salary. Never settle for a “I will fix this in future” argument by the hiring manager.
2. Stay in touch with reality?—?Even though salary hikes are annual/semi-annual events, you should seek performance feedback in real time. You should constantly talk to your manager and get feedback. A good frequency of meetings is every 2 or 3 weeks. If feedback is poor, start improving immediately.
3. Work on important things?—?always?—?You need to always work on the brightest/shiniest projects happening in your unit. Listen to your CEO/SVP/EVP and top managers. Hear what projects they are talking about. Discuss with your manager about how you can get into one of those projects. If you are good contributor, you WILL get picked up for that key project. Its matter of you talking to right people and making the right move.

If you have done the above 3 things right, you will be rewarded handsomely for all the great work you do.

P.S.
By the time a hike letter is given to you, the appraisal system is CLOSED. There is no negotiation scope for hike offered. Its not that the manager can say “Err?—?Maybe I did not assess your performance correctly, let me ask for more money and come back to you!”. Very very very few employees can actually get that kind of correction. And remember, the manager is himself/herself putting a lot of his/her own credibility on the line in the process. So, don’t haggle too much, start working for your next appraisal right away!

*Remember?—?a manager is a team member of his boss’ team ?