Annual Raise Question

[LivingAlmostLarge]

Okay, DH found out last night what his annual raise/bonus would be. This is our first year seeing such things, so we have no basis to compare against. When I worked for 3 years I saw large increases of 10-20% mainly because I was underpaid to begin with. So it's not the same comparison, plus I switched companies and got promoted as well.

First off he got two separate ratings individual/company. He got the higest rating for both and still ended up with a "generous" 4% raise. That's apparently high for the company, the ratings were 1-4 and he got a 4 = 4% raise. An average worker gets a rating of 3 and 3% raise. He seems upset/frustrated because he's working his tail off. Is this typical? He realizes that if people get ratings of 1, they fire them, typically about 5-10% a year.

But then he got a larger than expected annual bonus because the standard was 8% but he got 110% and 120% "extra" performance based compensation. So he ended up with a 11% bonus overall. Plus restricted stock bonus another 4% annually, so our bonuses are making up a huge chunk of income.

Is this typical? Should he be happy or disappointed? Overall the 4% raise is nothing, compared to his bonuses which amounted to about 25% of his income in 2006. Which is nice, but it's frustrating because I don't think we should always count on bonuses. He agrees and wonders how do you budget such stuff? How do you negotiate when looking for other jobs? What is your compensation? Salary and bonus or just salary?

Can everyone shed some light on how this works? What to think about bonuses and raises? And how to assess the value of such compensation properly.

[sweeps]

Yes, that is pretty typical. I know some people on here talk about getting 10%+ annual raises but that's not normal.

Companies like to play around with numbers to make them sound better. For example, giving a bonus range from 0% to 200%. Rating someone at 100% sounds a lot better than rating them at 50%, even though that's really what they got.

And of course manipulating bonuses are more preferable than manipulating people's salaries, because it's easier for people to accept a cut in their bonus than a cut in their salary.

[disneysteve]

Originally Posted by LivingAlmostLarge

I don't think we should always count on bonuses. He agrees and wonders how do you budget such stuff?

I can't help you with most of your questions as I don't work in a corporate environement. I'm in a small business and haven't gotten a raise for years.

I did want to comment on what I quoted above. You and your husband are absolutely correct that you should NEVER count on bonuses. You should do your household budget based on salary alone. Don't include the bonus at all because you never know how much it will be or even if it will exist in any given year. You don't want to spend that money in advance and then have it not materialize.

So what do you do with the bonus money when it doesn come? Use it to bolster savings - perhaps your IRA contributions or kids' college funds. Use it to pay down debt if you have any. Use it for fun stuff like vacations. Put it away as savings for when you need your next car. Stuff like that. Just don't include it as part of your regular spending plan.

[LuxLiving]

Very nice bonuses. I'd be very happy but wouldn't count on them coming every year.

[zetta]

There is strategy in the corporate side of this as well -- when they give a raise, they're locked in to paying that amount in future years, while when they give a bonus the next year they're not locked in.

I would suggest looking online to see if you can find a salary survey for the type of work your husband does. That'll give you the best idea of whether he is underpaid, overpaid, or right on target. I once discovered I was hugely underpaid for my area and years of experience. I took the salary survey info to my boss just before review time, indicated I'd leave the company if this wasn't fixed, and got a 14% raise.

[LivingAlmostLarge]

Yeah I hate the idea of bonuses making up so much salary. I'd rather have a big raise.

[Daylily]

How about being on a salary freeze? Four percent is not that unusual.

[safari]

4% is better than average annual raise, but a lot depends on the company and its financial situation. In the past I've gotten a 17% raise and a 13% raise, but I started with a low salary and the company was making good profits back then. The last few years my raises have been around 4%, which is considered pretty good. Most people are getting raises around 3%. Everyone is also getting yearly bonuses, which usually turn out to be about 3% of the salary. If your husband is getting a raise on the higher end of the scale at his company, then he shouldn't feel disappointed. It's unreasonable to expect a 10% raise when the company is giving only 4% to its best employees. He'd have a better chance asking for a promotion than for a big raise.

[Joan.of.the.Arch]

If you all think 4% is a good annual raise, then inflation must be lower than I thought. I thought the inflation rate was running around 3.5% per year. What do you all hear?

[safari]

Originally Posted by Joan.of.the.Arch

If you all think 4% is a good annual raise, then inflation must be lower than I thought. I thought the inflation rate was running around 3.5% per year. What do you all hear?

I meant 4% is a good raise compared to most companies, but if you compare it with the inflation rate, it's barely a raise at all. In 2006 average inflation was 3.24%, according to this site http://inflationdata.com/inflation/i...tInflation.asp

[lrjohnson]

I'm in civil service. We get "step raises" within a title; start as a Worker Bee I, range A, then a 5% raise to step B, then 5 % to D, then E, the max. Once a person hits Step E, no more "regular" raises, unless they get a 10 year longevity raise, or promote to Worker Bee II. Sometimes the union will negotiate a 2 or 3% COLA for us now and then; not very frequent.

The good part? You are guaranteed to get the same as the next person.
The bad part? You are guaranteed to get the same as the next person.

[ren]

My company had a ceiling of 3.5% last year, no bonuses unless you completed a certificate. Come the end of March, we'll see what this year's cap is.

Can't complain too much; was talking to someone who works for another company in the building and she got 0.5% last year because she was such an excellent employee, otherwise she would have gotten bupkis.

[LivingAlmostLarge]

Actually DH was a bit worried. Because talking with others, 4% is the lowest most people at the company have seen. Usually average is 6% and going more around 8%. But the bonuses used to be a lot smaller. According to the guy he sits next to, the company is trying to change the pay by doing big bonuses and absolutely minimal raises.

[tinapbeana]

DH got a 1% raise last year. he told his manager that if things at the company were that tight, they could keep the 1% because they obviously needed the money more than he did...

[vsjhoc]

Originally Posted by LivingAlmostLarge

Actually DH was a bit worried. Because talking with others, 4% is the lowest most people at the company have seen. Usually average is 6% and going more around 8%. But the bonuses used to be a lot smaller. According to the guy he sits next to, the company is trying to change the pay by doing big bonuses and absolutely minimal raises.

You might tell DH not to worry so much -- coworkers are not always honest about these things.

[Coleroo]

Unless its a high tech company with great growth, or fortune 500 I would not expect raises to be very high for people who continually stay in the same position, especially with hearing of so many lay offs and cut backs lately. What type of work does your hubby do? Is he in a management / supervisory position with a fast track career growth where a higher raise is expected? I think the bonuses sound GREAT, but youre correct to never "budget" for them in the present tense. One way you CAN budge for them however, is to open a savings account specifically ear marked for ONLY bonus money earnings.. then deposit ALL bonus money received in a one year time span (i.e. Jan 07 to Dec 07). Then, on Jan 1 of 2008, take the TOTAL amount accumulated in that savings account, divide it by 12 (months) and set up a once monthly transfer to your checking account and budget off of THAT deposit. Or you could devide the total by 26 and do bi-weekly deposits. By doing that you would create SECURE income for your budget every month, and essentially give yourself an "already taxed" raise for 2008.

For example,
Jan. 31 2006 - hubby receives $500 bonus; ignore it and deposit ALL into savings account
March 25 - hubby receives $150 spring fling bonus; ignore it and deposit ALL into savings
May 15 - hubby receives $1000 "good job!" bonus; ignore it and deposit ALL into savings
July 4 - hubby receives $200 independance bonus; ignore it and deposit ALL into savings
Sept 5 - hubby receives $600 laboring bonus; ignore it and deposit ALL into savings
Nov 23 - hubby receives $400 bonus for gratitude; ignore it and deposit ALL into savings
Dec 15 - hubby receives $1500 christmas bonus; ignore it and deposit ALL into savings

Dec. 31, 2007 - check your bonus savings account. There should be $4,350 (and some chunk change from interest accumulation.)

Take THAT number and divide by 12... 4350/12 = $362.5

You just gave yourself a GUARANTEED $362 a month tax free (taxes have already been paid!) raise for 2008. Set up a recurring transfer of $362 to hit your checking account on the first of EVERY month in 2008. Then begin the process again (sending in bonus money to that savings account and only withdrawing your set amount once a month from last years bonuses.)

Of course this would take a year of sacrificing that nice "pocket money" mentality that bonuses seem to put people in, but if your goal is to really focus on budgeting money that comes sporadically, this is a great way to self manipulate that monetary resource to fit YOUR needs (a set, stable budgetable amount)

Oh and 3% to 4% is typical around here in South Carolina it seems. I work in a large national non-profit call center as part of the staff / management team. We have 150 operators in our local center and they get anywhere from 2 to 4% yearly based on their performance and time at the company (some of them get nothing due to poor work performance). Staff raises around the nation for our company have been frozen for over 2 years now, AS WELL as any bonus we would have earned during this time. When times are tough for a company, and financial income is shaky, raises for those not on the "front line" seem to be the first to get shot down! A lot of my fellow staff members would love to see a guaranteed 4% increase right now along with loads of bonuses.

Also, the financial strategy from a company's perspective is that a raise permanantly affects their future bottom line, whereas bonus money does NOT - and can be given out when there is "spare money" lying around. In the long run, bonuses are good for the company - raises are best for the employee.

[LivingAlmostLarge]

Um, hopefully fast-tracked to a lot more money. He had heard from other coworkers that the raises had always been more generous and very little bonuses. It appears the company is trying to save money and lower raises and give more bonus money, so they don't have to do it every year.

[creditcardfree]

Military members received at 2.2% raise this year.

[MonkeyMama]

Hmmmm, I would consider 4% good.

I have had on average 10% raises my entire career, but that is a whole nother thing. The starting pay in my industry has more than doubled since I graduated in 1999. I get paid just enough to be paid a tiny but more than the new grads. Yet my pay has more than doubled in the last 6-7 years so I Can't complain. The last couple of years I got 5-6%, more of the same reason.

Frankly, my last 2 raises have gone completely to rising health insurance - doesn't leave any leftover. This year would have been the same but we opted for lesser coverage so we could start saving more.

I never really understood bonuses because again not part of my industry. But my boss used to pay us overtime as salaried workers. This became sticky legally so he pays it to us as a bonus every may. It's a bonus but it is not. HE doesn't have to pay it so I don't count on it. Pretty much I Consider it my IRA contribution - goes straight to my IRA.

I don't think the bonus system is the worst. We have a lot of small business clients, who on a good year love to pay good bonuses, to reward the hard workers especially, and often money is tight, so it gives them flexibility. If they paid everyone that in salary frankly they would have to lay off more people in hard times, etc. I think just another perspective- leaves options open for the employer.

Frankly I look at my entire compensation though as the big package. Salary, bonus, benefits, etc. IT is all considered. One piece of the puzzle does not tell the story at all and should be carefully negotiated for any job.

[LivingAlmostLarge]

Yep there was a jump substantially in medical premiums this year at the company which left a lot of the workers complaining. It took more than the raises, but less than the bonuses. I agree about the medical coverage. We love ours, and it wasn't that expensive to begin with. But I can see how people with families can complain.