Policy on Raises Is Incentive to Leave

Q: I have worked for a family-owned company for about 10 years. I like the company and the work, but one thing really bothers me: The owner does not believe in giving regular raises or cost-of-living raises. Instead, he gives what he calls “incentive raises.”

The highest raise I have heard of was 5%. More likely, he gives 2%, 3% or 4% raises to some of the better-performing employees and nothing to the rest.

Many employees have left the company for jobs that either pay more or have joined companies that have a better policy of giving raises.

My question is this. If raises are so small, are they actually an incentive? People who have gotten these small raises (me included) don’t seem to work much harder.

I’m thinking of looking for another job because I don’t think I’m being recognized for what I’m worth.

Do you have any advice?

--D.L., Arcadia

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A: There are really two issues here.

One is the perceived inequity. You, and likely some of the other employees, feel that you are not being treated fairly. The second issue concerns whether a relatively small raise is an effective incentive or motivator.

Research has clearly shown that workers who believe that they are not being treated fairly are dissatisfied, lack motivation and are likely to look for work elsewhere.

Sometimes these feelings of inequity are justified, other limes they are not. For example, there is a tendency for some workers to believe that employees at other companies are treated better or paid more (“The grass is greener . . .”).

One way to deal with these notions is to compare wages and salaries with those of competitors, as many companies do. Discuss your feelings and concerns with your boss.

Regarding the size of raises, a recent study showed that a pay raise had to be 7% of base pay or larger to have a meaningful motivating effect on employees.

It is also important to note that for any pay raise to be an incentive, the raise needs to be tied to actual performance.

--Ron Riggio, director

Kravis Leadership Institute

Claremont McKenna College