Balancing expectations for bonus-and-raise season
Everyone’s inner-optimist is a loud-mouth.
“Yes, you deserve a gigantic increase in pay.”
It’s that time of year when you hear about your bonus and raise.
“You’re obviously going to get it. So go ahead. Start fantasizing about it!”
That’s just what we do. We see dollar signs and start day-dreaming about what we can do with that extra amount of money.
“Which savings account should I place it in?”
“Where can I take my family for a much-needed and overdue vacation?”
The mysterious calculation of compensation
One thing people don’t always understand is how bonuses and raises are calculated. In some industries, all the steps and pay equivalents are highly defined and may even be the subject of regulation. Some of us have bonuses and/or raises written into our employment contracts, so we know exactly what we are eligible to receive every year. Some companies offer a less traditional bonus or raise structure that includes a grant of stock or an offer to fund qualified retirement plans.
However, some industries don’t operate that way. Some of us work in industries or businesses that offer no guarantee as to what to expect from bonus-and-raise season — and if there is a bonus or a raise at all, it depends purely upon profit and cash flow.
In some cases, small business owners (if they are savvy enough to have a handle on profit) actually can’t afford to give employees a raise. If the margins are too tight or the operation is mismanaged, employees may actually have to worry about continued employment.
What is the average bump-up?
So if your compensation will increase this month or next, what is an appropriate amount to expect and how will you know if you’ve been low-balled or you are highly valued?
According to a Towers Watson survey of U.S. companies, the national average pay raise in 2015 is expected to be about 3 percent.
The Bureau of Labor Statistics reported that the national, annual mean wage for those employed is $47,230. (Whether this is a high-enough number or not is a whole different debate!)
How far does the average bump-up go?
So what does a 3 percent raise (which amounts to $1,416.90 pre-tax annually for the mean wage) actually mean for the average American?
According to the Bureau of Labor Statistics again, the current rate of inflation is 0 percent (lower than last year’s average 1.62 percent), which means that a 3 percent raise will go further this year than last year’s 2.9 percent average raise* — which means it will actually give us padding for inevitable rising inflation. Cool!
Comparing the average to your budget needs
When you look at your personal budget, you may see your raise as an incentive to stay put or a reason to look elsewhere. But if, for instance, you know the cash flow within your organization has been positive all year long, yet you don’t feel like you’ve received enough from your bonus or raise, is there something you can do?
Sure, it’s easy to let our inner-optimist shine through, even if we know it may not always be the most logical train of thought. The thing is, a bonus or raise shouldn’t be considered in a vacuum. It represents a number of factors, some of which are completely outside your control. So if your new compensation doesn’t satisfy your budget needs, typically the choices run the gamut from quitting to negotiating for a better raise. You can also adjust your budget considering that your present salary looks like it may go a little further than it did last year.
See also: Negotiate for perks when raises are off the table
What will you do with your bonus or raise?
If you are fortunate to receive a bonus or a raise this year, hopefully your plans include eliminating a credit card balance or making a healthy deposit to your emergency fund or retirement account.
But what’s your bonus or raise situation? When it comes to bonus-and-raise season, have you always been offered additional compensation? What will you do if you aren’t offered enough? What alternative forms of compensation are you open to accept or barter for?
Become A Money Boss And Join 15,000 Others
Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)
There are 17 comments to "Balancing expectations for bonus-and-raise season".
I typically get a 2.5 – 4% raise. I’m at a new company now and am expecting 2.5% as a 1st year employee. We do get bonus quarterly but they’re usually only a few hunded dollars, which would just go into my checking account.
I started the year saving $250/wk, moved up a few months ago to saving $375/wk, went back down to saving $250/wk this month because of higher than typical expenses (and spending more than I should). My ultimate goal is to move up to saving $500/ week AND still have enough cash in my checking to fill in gaps left by overspending, so that I don’t have to reduce my savings, or worse….take money back out of savings which I’ve had to do twice this year.
Basically it’s only possible if I get a raise. Even if I cut my budget to the wire, I simply don’t earn enough to save $500/ week. Almost, but not quite.
I like to follow my dad’s advice: let the dust settle. I try not to think about what I’ll do with the extra money until one month after my raise goes through.
My dad’s thinking is to first find out how much you’re losing to taxes and cost of living increases. Second, you get to treat yourself to something fun the first month. (Within reason, of course! A new book or article of clothing I might not otherwise have bought.) Month two and onwards the extra cash goes towards savings and donations. (When I had student debt, the extra went towards the debt).
I’m grateful that I have a job I enjoy, let alone earning more money to do it 🙂
I’m very fortunate to work for a company that pays for performance. If you rate as exceeding or excelling vs. expectations, you are guaranteed a raise/bonus.
As far as amounts I have shifted gears the past 5 years after finding a comfortable level and I no longer look for opportunities to advance up the ladder. That limits my compensation % in some ways, but I’m happy with what I make anyway so a 3% raise and a 5% bonus are nothing to ever complain about. Especially when I know people who haven’t had a raise in years or work in retail for less than I made at my summer job in college.
I wasn’t always offered additional compensation. Early on in my career it didn’t come easy. While everyone else was bitching and complaining I put my head down and worked…asked my manager what I needed to get better at…took extra projects and opportunities. I listened to people say things to me like “I don’t know why you do extra, it’s never going to pay off” … when it did, those same people said I was lucky. Funny thing about luck, I have always found it to happen when hard work and opportunity intersect.
This is exactly what I experienced. We know ahead of time the different metrics and what we can expect to receive for reaching those metrics. Yet people are always surprised, or jealous, or upset. Once I decided to change careers, and knowing I wasn’t going to stay in my current one, I stopped looking for higher positions.
The good thing is that there are different levels in my position and I was hired at the bottome level (though I qualified for the top level and didn’t negotiate…stupid on my part). That means that I have income growth opportunity without having to take on a major promotion or any additional duties, in addition to the yearly raises. My last job I was at the top pay for my position and was limited to only 2% raises, even when I qualified for 4%.
Right now I’m just comfortable and enjoying the ride while working on my new career on the side, but still trying to get the maximum that I can. It’s enough for me now (or will be after just a couple more raises) and I like having almost 0% work-related stress.
You couldn’t pay me enough to go back to 1 year ago.
I’m a little underpaid at the moment, If I got 3% I’d probably jump ship pretty quick.
Since college I’ve worked at 5 small companies all with around 10 employees. I’ve found being straight with your boss about compensation expectations has been probably the smartest thing I’ve done financially. If you have the skills, be frank about where you want to be, and talk about how to get there. I’m actually asked for a meeting with my boss last week to go back through my financial compensation goals with the company.
Ah to get a 3% yearly raise. I work in the public sector and for the last several years we have gotten 1% yearly raises or nothing at all. At least I don’t have to worry about how to budget with more money!
I have definitely counted my raise and bonus before I had them before – and it didn’t turn out great. Now I know not to count on that money until I see it in my account.
Our raises are given at the time of our annual performance review. I have a rigid Administrator who does everything by the book. This year, my company, a large, for profit health care company that depends primarily on Medicare reimbursement, had a ceiling of 2% for the raise.
For the first time in my over 10 years with the company, I received less than the maximum amount, as my Admin felt I had a “needs improvement” on my review. She gave me a 1.9% raise. Negotiating for a higher salary is not an option in this company. I was angry at her pettiness, but knowing her, it was not unexpected.
At the beginning of the year the company had announced that due to the decreased compensation from Medicare, and other pressures on the bottom line, they would not match our 401K this year. Then in May, we were advised that the bottom line was turning out better than predicted, so there was a 401K match. So that was the good news.
I looked at the 1.9% and thought “What difference does that make?” What this article did for me is reconsider the annual effect of the raise. I guess I can just look at the net amount in my paycheck after the raise and calculate the annual difference.
The other thing this article did for me is informed me that with 3% as the average wage increase for the nation, my situation isn’t that far off the norm.
I actually just got my raise on July 1st. I was fortunate enough to get a 10% raise because of my efforts to take on more work this past year. After some calculations I increased my 401k from 20% to 27% which left my paycheck about $5.00 less than it was before my raise. I love the opportunity to be a responsible adult!
I am a civil servant, so bonuses are not giving and we might get a cost of living raise but its not a lot. I think it is less than a grand. I am thinking about moving into the private sector, because here if you work in the private sector (especially reinsurance) you’re making bank. Like 5 figure bonuses.
I think it can be tough to avoid going out and spending after getting a raise, especially for people relatively new to the work force. It can be exciting!
You are absolutely right!!
If you have this wonderful “problem,” try this.
When new to the workforce I would spend all of these unbudgeted bonuses on things that I had wanted but could not justify from usual income.
After a few years of doing this, I looked back and tried to remember what I had spent the money on. In a few instances I could remember but mostly I couldn’t. Now I see the money spent on items not remembered as wasted. That helps me with prospective and not doing it again.
For what it’s worth, look back on your past spending binges and decided if they are worth repeating, maybe they were? Probably they weren’t.
i get a regularly scheduled pay increase in a known amount every year, because it’s negotiated in advance with management. that’s one of the perks of having a union. more people should do this.
public sectors are relail pain to get a raise. I get somewhere between 2-3%
There is still a mindset that if you work in the public sector you are doing it out of a sense of virtue and not for the money – this is often used as an excuse for paying bad pay rates
Oh dear. If there has been 0% inflation and cost of living going up, does that mean that us people on Social Security do not get a raise this coming year?
Hey Stellamarina,
According to http://www.ssa.gov/news/cola/:
“Monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 64 million Americans will increase 1.7 percent in 2015.
The 1.7 percent cost-of-living adjustment (COLA) will begin with benefits that more than 58 million Social Security beneficiaries receive in January 2015. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2014”.
The aforementioned link provides answers to frequently asked questions as well as contact information. I hope you find this information helpful!