2011 Average Raise – Will Raises Stink Like Last Year?

by Darwin on February 19, 2011

With equities markets amazingly breaching prior highs already and unemployment slowing dropping to 9% with projections of 8% by year-end, the data is indicating we are firmly in a recovery now.  But it still just doesn’t “feel” like that.  The mood is somber, employees are still feeling like they’re on the verge of a pink slip and people aren’t taking career risks – it’s play it safe.  So, that begs the question as to whether employers need to give lavish raises this year in order to retain employees or not like when the economy was truly booming in the 1990s or early 2000s.

2011 Average Raise

I “heard” through the grapevine at my company that the average raise will be just 2% this year.  I guess in the context of high unemployment and low CPI (regardless of whether the government’s numbers actually represent the inflation we actually see [food, healthcare costs, college costs, etc]).  In the broader economy, the Conference Board’s projection for 2011 salaries is an increase of 3%, better than the 2.5% in 2010.  This doesn’t quite jive with what I’m hearing within my company since our average raise was actually higher last year while the national average was lower.  But I guess this has something to do with our individual company and industry as well, rather than the economy as a whole.  Bear in mind, certain industries and companies are subject to different market forces.  We heard a few months back about how Google had to enact 10% raises to retain employees and we’ll probably continue to see this type of behavior in hyper-growth industries related to the web and social networking.  But the old economy careers?  Probably closer to the national average or lower.

Why Are Raises Low Over the Past Few Years?

In talking to friends at other companies that were disappointed by their annual raise last year, they said in some cases, management gave out no raise whatsoever across the board.  They had cited flat or low inflation year over year as a justifying factor.  Other companies are citing shrinking profits or an uncertain financial climate moving forward.
My take?


They’re not giving out substantial raises because they don’t have to.


Why would they? Compensation is all about supply and demand and retaining your top talent.  Even high performers with degrees in demand are staying put.  Here’s why companies could probably be even more stingy and employees would still stay:

  • The job market is stagnant. While I still see some decent volume and prospects through The Ladders notifications (which are great by the way – they focus solely on six-figure salaries and hone email updates to relevant location/titles/roles only), you just don’t see people jumping jobs like they used to.  The openings aren’t there. Why?
  • People are risk-averse right now, and rightly so.  During the internet boom, anyone that could code was jumping from company to company annually chasing a sweeter deal.  They had no qualms about going to a startup that may fail because they could just fall back on another hot job with a stronger company.  There was simply more demand for those jobs than there were people to fill them.  Now?  Unemployment of very employable and qualified people is higher than this generation has ever seen.  If you’ve got a job now, you want to keep it.  Heck, I Passed on a 90% Pay Increase in this economy.
  • Putting Off Retirement – People that weren’t laid off already are working longer.  After taking a haircut in their retirement accounts, many people now intend on working years later than what they probably envisioned a few years ago.  This is going to further suppress new job openings for years to come.
  • Productivity is up.  Companies really got lean during this prior recession and found ways to cut costs and jobs that will likely NEVER come back, no matter what kind of stimulus or intervention the government tries to throw at it.
  • People can’t afford to relocate! Even high pay roles are now being offered with no relocation assistance or limited benefits.  When you were sitting on a six-figure gain on your home value, it was really easy to jump up and move to another state (it was almost like an added signing bonus to tap that piggy bank every few years).  Now, people are looking at taking a huge loss to move.  This means companies don’t have to backfill jobs from departing employees.

All these factors have basically pushed the equation WAY in favor of corporations and away from the interests of employees seeking further wage increases.  That being said, what I’m hearing most is “I don’t really care what raise they gave me this year, it’s not like I’d leave over it!”.  So, in essence, I guess anyone that got a raise at all this year should be content.

What Are the Implications of Years of Low Salary Increases?

This is a rather grim self-fulfilling prophecy in that with lower annual raises, something’s gotta give.  It seems as though, at least for the time being Americans have smartened up a bit under the New Normal.  Savings rates are up and consumption is down.  But that’s not good for job growth in industries that rely on consumption – travel, retail, just about every facet of our economy.

The silver lining is that with wage growth suppressed to this degree, even though there’s rampant money printing going on at the moment, it’s unlikely to result in hyperinflation as long as unemployment remains in the high single digits and salaries aren’t growing quickly.  Frankly, Americans would rather have some inflation and a job, but we don’t have the luxury of choosing.

With these factors in mind, I could envision a scenario where annual raises continue to proceed at the 1-3% range for a couple years.  What will be interesting to see as well is how union contracts are negotiated since they’re generally multi-year contracts and typically demand 3-5% annual raises regardless of economic conditions.  Negotiations could become rather tough there as well for both private sector unions as well as public sector unions where states are facing major budget cutbacks as well.  So, while I saw a rather low annual raise on the year, I wasn’t surprised nor am I angry over it given the environment.  It beats a layoff!

Did Your Raise Suck?

What was your raise this year and did you think it was fair?

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{ 16 comments… read them below or add one }

1 Crystal in Ft Worth March 30, 2010 at 7:25 am

What is this strange word you use…raise? Ha!
I work in the healthcare industry, and this will be year #2 wothout getting any type of raise. Basically we were told ‘love it or leave it’, and while I do not love it it is not in my best interest to try to look for another job at this time. The one silver lining is that my company resumed the 3% 401K match that had been called off last year

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2 Money Beagle March 30, 2010 at 8:04 am

My raise last year was 0%. They also took away the 100% match up to 6% in our 401(k) so it pretty much sucked across the board. The upside is that we have pretty good health coverage and the out of pocket costs for my plan only went up a few bucks per month.

Hoping that there is a raise this year but we don’t find that out until November which is when our company typically doles them out.

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3 Budgeting in the Fun Stuff March 30, 2010 at 10:43 am

We’ve been on a salary freeze since November of 2008. I’ll find out during our next review in May if that is continuing or not. Luckily, they had started matching our 401ks 100% up to 6% in early 2008 and kept it up (instead of the 50% up to 6% that it had been).

My husband is a teacher and has had his salary frozen for 2 years due to district problems. They are talking about giving 5% raises for the 2010-2011 school year…it probably won’t happen, but it would be nice if they got something. Their insurance costs went up a little too.

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4 jim March 30, 2010 at 7:01 pm

Yep. Also consider that we haven’t had much inflation lately and even had some deflation in 2009.

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5 LeanLifeCoach March 30, 2010 at 9:41 pm

List another in a the no raise department here. Just learned today its not happening. On the one hand, I am with you and happy to have a lucrative position. On the other hand, I am ticked. What happened to all those years of “pay for performance?” My performance has increased so show me the money!

Sadly, while I understand why companies are leveraging the current climate to their benefit I am consulting business owners and suggesting they be careful. I am seeing first hand how this environment is negatively affecting morale and loyalty.

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6 Paul @ FiscalGeek March 30, 2010 at 10:26 pm

No raise here either. I did get a bonus albeit much smaller than usual. Do more with less that’s our motto. It’s also why I’m working on my escape plan.

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7 Darwin March 30, 2010 at 10:42 pm

Wow, I had no idea about this overwhelming 0% raise phenomena. Thank you all for sharing your stories and sorry to have even complained at all!? I haven’t seen this covered in the mainstream press. An occasional “salary reduction” or “no raise” story seems to be a big individual story about a particular company but I didn’t know it was so widespread.

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8 Wizard Prang March 31, 2010 at 10:15 am

I ain’t had a raise since 2003.

But I love my job.

Prang!

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9 Budgeting in the Fun Stuff March 31, 2010 at 6:22 pm

Just got an update that anybody who’s been at my company more than 3 years has been moved to annual reviews, which means I don’t even have a chance for a raise until November…yay…2 year company-wide salary freeze.

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10 Samurai April 1, 2010 at 12:08 am

Hmmmm…. can people really get excited bout a 3% raise? I mean, even if you made $1 million a year what’s a 30K raise?

Let’s use a typical $80,000 salary $2.4K raise? I donno. After tax, is like $150/month. Better than a poke in the eye i guess.

I’m just saying that a 3% raise is like a 0% raise, and it’s best to just have a job in this environment!

Best,
Sam

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Budgeting in the Fun Stuff Reply:

@Samurai, I get excited by my 3% raises and I only make $35,000…it’s still money.

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Darwin Reply:

@Samurai, I don’t know that it’s something to get excited over, but an annual raise is something people tend to expect – since we live in a world with inflation. While CPI numbers tell one story, we all now “real” inflation that typical Americans experience is much higher than 0-2% each year. Crap toys and cars come down in price while gas, health care contributions, food and all the stuff we actually need goes up 5-10% each year.

So, the headline number is low, but the real number is way higher than 0. So, if you’re getting no raise, you’re basically losing money in terms of real income each year. That hurts!

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Financial Samurai Reply:

@Darwin,

I guess so, but i wouldn’t complain too loudly in this economy just yet. There will be someone willing to do it for 20% less!

Sam

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Brian Reply:

@Samurai,

Looking at these replies I see how good my job is (Luxottica.com). I just got a 7 % raise and a $400 bonus.

Best part, no union, no government interference, pure capitalism.

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11 Kyle April 1, 2010 at 1:03 pm

My company pulled the old “e” word to justify no raises – and reported a 17% organic growth. I started looking right away. They must have found my profile on careerbuilder or linkedin. I got called into a meeting two weeks later and was asked if I was thinking of leaving. Of course I said, “No, why do you ask (wink wink)”. My direct bosses are pretty cool. They used a loophole in policy and gave me a ‘responsibility increase’ promotion which allowed for increased pay, like 20%! I guess early in my career (4th year, 2nd job in programming), this sort of increase is expected. Sometimes luck is a good thing too.

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Darwin Reply:

@Kyle, Damn, now that’s turning adversity into opportunity! Nice work!

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12 Len Penzo April 4, 2010 at 1:04 pm

Well, this year it was 5.6% – which is pretty good considering the state of the economy, but it is lower than the 7.5% I’ve averaged over my 20-year career.

That is understandable though for life in the corporate world. As our salaries continue to grow it naturally gets harder and harder to maintain that kind of pace.

Best,

Len
Len Penzo dot Com

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13 Frugal Brunette April 6, 2010 at 11:17 am

Actually, over here at the Law Office that deals with Foreclosure (talk about job security) we were treated pretty nicely. As for me (hourly) I got 2 bucks more which is rather big. As far as I know, my coworkers on a salary were pretty well off as well.
But again, I work in a business that is BOOMING instead of going down the drain like every other one out there.

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14 frugal zeitgeist April 6, 2010 at 5:32 pm

No raise! Still have a job, though, unlike many of my former colleagues.

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15 Funny about Money April 7, 2010 at 8:25 am

“Raise”? What’s that? Before I was laid off, we hadn’t seen a raise in three years. Last year, we had furloughs that cut our pay 10%. This year the survivors at my now-former place of work were supposed to get a permanent 2.5% pay cut.

To add to that, contrary to expectation, in 2010 Social Security did not raise the earning limitation for so-called “early” retirees above the 2009 level of $14,160. Since the community college where I’m now scraping together a living with adjunct teaching pays a munificent $2,400 per semester-long course, this meant that to avoid a 50% tax levied by confiscation of an entire month’s SS check, I had to limit my assignments to 5 courses, enforcing poverty by limiting 2010 earned income to $12,000. And no, there are no f/t jobs out there for hypereducated women my age — I couldn’t even get a job driving the tourist tram at the zoo.

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16 Dr. Timothy Lawler February 27, 2011 at 5:12 am

Great post, and yes, I completely agree. There is no reason for them to HAVE to give you a raise, but you should try to combat this issue. You should position yourself as an authority/integral role in your company and then ask for a raise. In the military, we received a 1.9% this year vice a 3% increase in the previous years. Keep up the good articles!

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