How To Maximize Your Pay Raise
Tuesday, September 27, 2005By HR Whatnot Staff
The employee performance review is one of the most stressful interviews professionals face, second only to the hiring interview. This does not need to be the case. Employees can learn the process and maximize their raises by preparing and following the steps outlined below. The number one crucial step to maximizing your raise is to do an outstanding job. This sounds obvious, but most people fail in this first step. All the other steps are irrelevant if you miss this one.
1. Do An Outstanding Job
The most important element effecting your performance review and your pay raise is your performance. You must do an outstanding job to get an outstanding pay raise. If you are not willing to do an outstanding job, then you might as well stop reading right now because you are giving up the biggest piece of your raise. People that do mediocre work make it easy for people that do outstanding work to get great raises. It is hard work being outstanding and most people don't want to put in the effort required. If you are willing to put in the effort to do an outstanding job, you will stand out from the rest and you will be recognized for it.2. Understand Your Rating System
There are two aspects to your rating system: Your rating, which is usually a 1-5 number, and your Compa-Ratio, which is usually expressed as a number between 0.80-1.25 (or as a percentage: 80%-125%). These two numbers combined will determine whether you get a high raise, a low raise, or no raise at all.Rating
Your rating is how well you performed relative to your peers and relative to expectations. It is usually a scale as follows:| 5 | Superior - Consistently exceeds expectations |
| 4 | Meets or Exceeds Expectations |
| 3 | Meets Expectations |
| 2 | Needs Improvement |
| 1 | Unsatisfactory |
Obviously, your goal is to be rated as a 4 or a 5. Managers are instructed to rate their employees according to a specific distribution to prevent them from giving all their employees 5's. The usual distribution is the standard bell curve that looks something like this:
| Rating | Target | Requirement |
|---|---|---|
| 5 | 5% | Max of 10% |
| 4 | 15% | Max of 20% |
| 3 | 70% | Min of 60% |
| 2 | 10% | Min of 5% |
| 1 | 2% | No min or max |
What this means is that you are competing with your group to get better than a 3. Small groups have it harder because even though they are not strictly held to the target, they are expected to follow it to some extent. Don't be upset if you don't get a 5, because hardly anyone does, and that is by design.
Compa-Ratio
Your Compa-Ratio, or Compensation Ratio, represents how well you are paid compared against an industry standard. Compa-Ratios are position specific. Each position has a salary range that includes a minimum, a midpoint, and a maximum. These three values represent industry averages for the position. The Compa-Ratio is calculated by dividing your base salary by the midpoint industry average.A Compa-Ratio of 1.00 or 100% means you are paid exactly what the industry average pays and are at the midpoint for your salary range, while a ratio of 0.75 means you are paid 25% below the industry average. You might think that you want to have a high ratio, meaning you are paid more than the market average, but this is the exact opposite of what you want. You want your salary to be below the midpoint average. Why? Because this ratio to a large extent determines whether you are allowed to get any raise at all and if so, how much. Managers are given rules that dictate the raises they can give. One such example:
| Compa-Ratio | Raise Action |
|---|---|
| 1.15+ | No raise, possible bonus |
| 1.00 | Company average raise expected |
| 0.80 | Above average raise expected |
In this example, a 1.15 compa-ratio would mean you are ineligible for ANY pay raise. A compa-ratio of .80 means you are expected to get a substantial pay raise. A compa-ratio of 1.00 means you are expected to get the average pay raise determined for the company. There are tricks your manager can play if you have a high compa-ratio, basically giving you a bonus instead of a raise, but that means he has to fight for you every year. It is much better to be on the low side because it makes it very easy for your manager to reward you.
If you are in a high compa-ratio, it is expected that you will get promoted into the next position. This will bring down your compa-ratio. If you are not promotable to the next position for any reason, you need to rectify that as soon as possible. That may mean finishing a degree or certification program, enrolling in a mentoring program, or picking up a needed skill. This is something you need to do whether your company pays for it or not. The worst thing you can do is sit at the top of your pay range and not be able to move into the next position. You will consistently get low to no raises and you will be the first to get laid off during down times. So take the initiative to fix whatever is keeping you out of the next higher position.
Salary Action
Tying your rating and your compa-ratio together is what determines your actual pay raise. If you are an exceptional employee with a low compa-ratio, you will get the lion's share of the raise allocation. If you are an underperformer with a high compa-ratio, you will get slim to no raise. Knowing where you stand with these two numbers will tell you what you need to do. The key is doing it before your next performance review. Make it easy for your boss to move you into the position above you by having all the requirements for that position before you go into your review.Arm yourself with the pay range for your position, your rating, and your compa-ratio so you can prepare for your next performance review now.
3. Accomplish Your Goals
At any point in your career, you should have clear goals. If you do not know what they are you need to ask your manager. This is something new hires should ask during their hiring interview and clarify once they come on board. Current employees get their goals for the next year from their review process. It is important that these goals are achievable and that they are important to your job. You can have an effect on what your goals are by preparing your own set of goals before your review process and suggesting them to your manager. More than likely, your manager will accept them if they make sense, because your manager already has too much to do, so any help from you will be appreciated.Once you have these goals, it is your job to get them done before the next review process. If it means reading some books or learning a new process, do them. Having all your goals done makes it easy for your manager to give you a good raise. Not having them done makes it easy for your boss to give that good raise to someone else.
4. Toot Your Own Horn
When you do something exceptional, you need to make sure that your manager and peers know about it. This does not mean rubbing their noses in it, but it does mean telling them what you did and explaining how much effort it took and why it is an important achievement. Do not rely on your boss or word of mouth to spread your good work. You need to take an active role in selling your good deeds when you do them. Once you do, move on to doing your next exceptional thing. Make sure to keep track of your accomplishments so that you can bring them up during your next review process.5. Attitude
A positive attitude makes a big difference. No one wants a complainer on their staff. You may think that the squeaky wheel gets the oil, but that is short term thinking. That squeaky wheel will also be the first to go when their is a slow down. Squeaky wheels get their oil begrudgingly. Your goal is to earn your oil by doing exceptional work and doing it with a positive attitude. This does not mean always smiling and bouncing around for joy. It means looking at things with the goal of fixing and improving them. Contrast this with the majority who complain about every change and fight to keep things the same. If change is happening in your company, figure out how to make it work for you and how you can contribute to the company goal, instead of trying to block it.6. Make Them Want To Reward You
If you are doing an outstanding job and you are adding value to the company and helping to keep morale positive and focused on the company's goals, the company will want to reward you. They want employees like you, so they will make sure that everyone else sees that if they perform like you do, the company will reward them.7. Hold Your Boss Accountable
Know when your performance review is supposed to take place and make sure it happens. Your managers are required to review you when scheduled. If they don't, it is up to you to remind them to do the review. You can help by getting your side of the review ready ahead of time and offering to set a date for when to sit down for the review. Many managers procrastinate in this area. They will put it off because it is time consuming and outside their normal tasks. So keep on them, but do it in a positive and constructive way.8. Don't Discount Alternatives
There are alternatives to salary increases. The main alternative is cash bonuses. Stock and stock options are also an alternative. Knowing the alternatives will help you better negotiate your raise. If you have a high compa-ratio, this may be your only chance of getting any kind of pay increase. Before or during your salary adjustment phase of the review, let your manager know that you are open to these other alternatives to salary adjustment.Some companies have programs to share benefit savings. You agree to forego a certain benefit in exchange for an increase in cash or salary. This is most common with health benefits. If your spouse can get health coverage somewhere other than your company, your company may be willing to split the savings with you. It behooves you to know about these programs so that you can take advantage of them if they fit your needs.
9. Don't Threaten To Quit
Threatening to quit is like a spouse threatening divorce. It does two things. It makes your manager know that you are not loyal, and it makes you look unprofessional. You may get a short term pay increase by trying this, but you may end up losing your job next month. Managers, like most people, do not react well to threats. The normal reaction is to strike back. The standard way to strike back is to get rid of you.10. Don't Rely On Salary.com
Salary.com is a popular and useful site for salary information. Unfortunately, for whatever reason, the salaries are often high. This is well know in HR circles. Your manager and HR are not interested in what your salary should be according to salary.com. They use multiple (paid) sources to determine the market rate for what your position is worth and they know where you stand. Before you get your review, they have already done your Compa-Ratio. So use that information to judge how well you are paid and whether you are ready to be promoted.11. Focus On Value
There is a cliche that says the best way to get a raise is to explain to your boss why you need it rather than why you deserve it. This is just wrong. It may have been the case in feudal england, but it is not the case today. Your manager and your company do not care how needy you or your family are. They care and pay according to how much value you bring to the company. If you bring a lot of value to the company, they will pay you more. If you bring marginal value to the company they will pay you less. The next time you are tempted to explain why you need a raise, switch it around. Focus on the value you bring to the company and the accomplishments you have made over the last year.12. Patience Pays
Payroll is one of the biggest line items in every company's budget. That is why salary increases are agonized over so carefully. They make a big difference in the company's finances. This is important to keep in mind because companies move slowly in this area. If you are underpaid according to your compa-ratio, do not expect to be brought in line all at once. Instead, expect your salary to be brought half way the first year. If you get more you are fortunate. Very few if any get brought up to the industry average in one increase. Expecting, or worse, demanding that you be brought fully in line will just make everyone miserable. Even if your manager wants to, he won't get authorization. The best strategy is to be patient. As long as you are moving closer to the industry average (50% each step is the usual), forget about it and direct your energies to doing an outstanding job. If you are consistently at a low compa-ratio and not improving, you need to talk to your manager to find out why. Focus on what you can improve to merit an increase, not on finding out why you are being persecuted.13. Know Your Market
Keep up with your industry. If you are a software engineer and you know that most software jobs are being outsourced to India or Russia, then you also know that you are not in a strong bargaining position. If you happen to be a specialist in device drivers for mobile devices, and you know that this specialty is a very hard position to fill then you know you are in a strong position. Likewise if you are a salesman in real estate or mortgage banking, and you know that the industry is red hot, you are in a strong position. If you are in a manufacturing position and you know most plants are being outsourced to China, then you know you are in a weak bargaining position.If you find yourself in a weak bargaining position, you can do one of two things: you can ride it out, fretting over when the inevitable will happen, or you can work to move yourself into a stronger position. Update your skills or redirect your growth path to intersect with a path that has a stronger bargaining position. This does not mean quitting software and becoming a mortgage broker. This means looking in your industry at what is strong and trying to get closer. As a software engineer, maybe start reading up on security issues, since they are red hot and will be for quite some time. The key point is to position yourself away from the weak areas and closer to the strong areas.
14. Do More Than Expected
There is a well known saying, "do more than you are paid to do and you will always be paid more than you do." This is as true now as it ever was. If you do what is expected of you, you will get graded a 3 at best. To get the 4's and 5's you must do more than is expected. If you do just what is expected, then you will get paid just what you are getting paid now. If you do what your boss is doing, eventually you will get paid what he is getting paid.Many employees mistakenly subscribe to the strategy of only doing so much because they aren't getting paid enough to bother. When the company decides to pay them more, then they will do more. Why is this mistaken? Because the company will never promote you to do more until you prove that you can and will do more. You have to prove to them that you are worth the extra money, not the other way around.
This strategy also means focusing on where you want to be and doing what that position requires now. Eventually you will get the position, because when they need someone to do it, they will pick the person best able to do the job, and who better than someone who is already doing it? Yes, it means extra work, and yes it is not easy. The rewards of your hard work and strategy will be promotions and higher pay.
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Comments (subject to review)
Good article. But it seems it is one sided. Always satisfy the boss on all conditions ie inturn company. Having been done good job more than to do and altimately you landed up without any pay raise. How to counter attack such situation being though waited patiently enough time.
Regards
Azharuddin Fri Nov 18, 2005
Since I'm a low level employee, I've worked with a lot of people who ONLY DO THE MINIMUM of what is expected of them. The reason could be that they feel they are under paid, unappreciated or that they feel they can't go beyond their current position.
I personally follow and agree with this article because I think I can do better. If the company I work for doesn't recognize my contribution, I will search for greener pastures. Fortunately, I have a great boss who recognizes my contributions and rewards me accordingly.
Wed Mar 08, 2006
I find this article very true. At some point when your manager stop recognizing the hard work you put into the company then its time to move on. It is important to set clear objectives and making sure your manager is on the same page as you.
Alex Mashi Wed Sep 13, 2006
