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

[goldsquare.livejournal.com]

Bonus is backwards looking ("Good job this year: have a check") and an incentive is forward looking ("If you can do all 3 impossible things, you can have a check").

Also consider profit-sharing in the mix, for whatever that might be worth.