What is a reasonable average raise percentage per year? Should your salary increase by 3% or 10%? Recently, companies are using the national inflation rate as benchmark data. How do you determine whether you deserve and increase above or below the inflation rate?
Should inflation rate be used as a benchmark?
The inflation rate for each country is different because of the underlying economic policies & situation. A healthy rate of inflation is meant to keep the economy productive and ensures that money flows through consumption. This is to avoid a deflation scenario where people would withhold spending as money rises in future value. But what about your salary? Is inflation a good benchmark for your future salary increase?
The first way to look at it is, how is inflation calculated? The Federal Reserve excludes volatile industries such as food and energy. Looking at your personal spending pattern which includes food and energy consumption, you wonder to yourself, “Why does my standard of living seem to drop over the years despite the increased salary based on inflation?”
The answer to that is, it depends on your situation. If you are spending a higher % of your income on food and energy consumption, and if prices of food may have recently spiked. You will have to spend more money to purchase the same amount of food. But what about my inflation adjusted income? Since the official inflation rate did not (and will not) take account of your typical spending pattern, your inflation adjusted income just does not keep up with the “actual” inflation rate. In short, there will be a gap between “your inflation” and the official inflation rate simply because the standard basket of goods used to calculate the inflation rate is different from your personal standard basket of good bought monthly.
We are only thinking of the effect on 1 year “inflation adjusted” salary raise, what are the effects over your career of 30 years?
The point is you should not assume that you are keeping up with inflation.
The average raise percentage per year, when at inflation rate, in my opinion is not a raise at all.
What should you do?
Now that you understand how the inflation rate is not the best benchmark for you. However, this argument alone wouldn’t get you far with your boss or the human resource department. Nonetheless, you have 3 choices to improve this situation:-
Negotiate for your increase based on contribution
- Look through your personal contribution for the year
- Justify why you should deserve a raise beyond the inflation rate based on your contribution
- If you are unsuccessful in getting an increase above the inflation rate, get clear direction on the achievements and contributions that would earn you the deserved raise for the next review which could be 6 months or 12 months
Upgrade your skills
- Have you gained any skills to be of higher value to your company?
- Take certification that is valued by your company
- Further your studies if possible (you may ask for financial assistance from your company)
Look out for opportunities
- Consider the learning curve that you could have switching to a new job
- You can negotiate for a higher than inflation rate increase
- You avoid the perception that you are a “stable & satisfied” employee from the perspective of human resource – Is this one of the reasons you are getting the lower end of the salary increase?
Employees who stay with a company longer than 2 years get paid 50% less
Aim to beat the average raise percentage per year. It adds up very quickly as your increase is compounded over your 30 year career.
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