Theory of Raises

[dsrtao]

[this has absolutely nothing to do with the company I work for, except that it started me thinking about raises]

The components of a raise are:

• performance evaluation: has your value to the company increased?
  
• economic adjustment: the dollar is worth less than it was last time around
  
• market adjustment: would it be rational for you to accept the transition costs involved in finding a new job? Would it be rational for your employer to replace you?
  

All of these are essentially historical. Forward-looking compensation should essentially be in two categories:

• Job change adjustment: you're going to be doing something new, the pay should be renegotiated.
  
• Incentive reward: in exchange for reaching certain (clearly defined!) goals, money is promised for the future.
  

Have I missed anything?

Comments

[jtdiii.livejournal.com]

You are also presuming a company wants to remain at the top of the salary band.

In fact many companies will hire near the top and then award raises at below average rates in the proven belief that once someone is settled in they will not look at the prevailing rates, or be willing to leave unless there is a major discrepancy.

[dsrtao]

That's probably a great way to ensure that you have employees who are happy for about three years, then leave.

[metahacker.livejournal.com]

The vast majority of people I know are unhappy at their job. This points to a widespread rash of this.

From a capitalist perspective, salaries are generally set at "the lowest number we can give you that won't cause you to leave". This is well below "the lowest number at which you will join the company"...

[jtdiii.livejournal.com]

Check out the average defense contractor... more like 15-20.