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

[autopope.livejournal.com]

You're looking at it from the employees point of view.

That's not the right outlook. You need to think yourself into management's shoes.

* Is the employees' contribution to the bottom line such that they're not trivially replaceable and their loss would impair your division's operation? (This may also depend on external hiring conditions ...)

* Are you being squeezed for efficiency improvements from up top?

* Would the money available for handing out rewards be better spent on hiring extra hands, or transferring to the "profit" column of the balance sheet?

* Do you care about employee morale?

[dsrtao]

All fair points.