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Compensation: Ending Annual Merit Raises, Salary Increases?

When I graduated from college (a quarter century ago, oh my) and got a “real” job, I was rather amazed by corporate perks like healthcare coverage, paid vacation, sick days and annual merit raises. But like most folks who navigate the workforce, I started to take many of those perks for granted.

Then the dot-com implosion arrived. During the early 2000’s, many tech companies and media companies temporarily scrapped annual merit raises. Fast forward to the present day and there are clues that merit raises — delivered every 12 months — could disappear forever in some companies.

The latest indicator? General Electric Co. executives are reviewing whether annual salary increases are the best approach for driving workforce success, Bloomberg reports. Skeptics may suggest that GE is simply looking for new ways to cut or manage costs.

Has It Been 12 Months Yet?

I admit. I’ve always been borderline arrogant when it comes to regular raises and promotions. When I was working in the corporate world, I expected to be rewarded (i.e., salary, bonuses, etc.) for a tireless work ethic. When times were tough I realized companies and their employees had to tighten their belts. But when the gravy was flowing, I certainly tried to elbow my way to the front of the compensation line.

Generally speaking, I think most companies are still married to annual performance reviews and compensation reviews. But increasingly, as the Bloomberg coverage pointed out, companies are offering low-performance employees no merit raises — and shifting that budget to higher performing employees.

In some ways, I consider that approach passive-aggressive. You’re basically telling no-raise workers that their past year of work was lousy or worthless — but please stick around and keep performing poorly. Without a proper performance plan — and incentive plan — in place, the poor performance game could go on for years.

I’ll be curious to see if or how GE truly evolves its merit raise strategy. At a time when lots of folks think the middle class is getting squeezed, the potential death of merit raises had better give rise to new forms of compensation…

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1 Comment

Comment

    Jim Lippie:

    Great points here, especially for those MSPs having their margins squeezed. When I ran a division for a big business, the rule was no employee raises without price increases to cover the raises, but that turned out to be unsustainable long term.

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