From a company's perspective, just because one person gets a market rate that is higher than the rest of the team, the entire team can't simply be given a raise. While this sort of largesse may work for Google & FB, I doubt it would for those companies that grow in single digit to low teen % per annum.
Also, if the person given this raise is not amongst your top performers and now ends up out earning the rest of team, it ends up affecting overall team morale. Your star performers then start to feel short changed and think they have to leave to get a raise.
Largely false. Managers have pretty wide latitude to approve compensation matches for employees they want to keep without up-leveling them. So if you're a star L5 at Google and Facebook is giving you a $MM E7 package, you could end up with a $MM stock grant (which would normally be reserved for L7+) at Google. Compensation raises are tied to level, but that just means that you'll sit and vest your existing stock grant without further raises or refreshers until your formal level matches your comp package. This happened semi-frequently in the ~2010-2011 era when Facebook was recruiting heavily out of Google with pre-IPO stock.
The promo process is based on your value to your employer, and at least at Google is done by committee, which is drawn from a selection of high-level employees outside of your manager's department (so they have no incentive to keep you) and has a packet of information that does not include anything about your market value outside the company.
Well, if you are on the higher end, you probably don't want to share with those on the lower end, simply because 1 of 3 things will happen.
1. They ask for a raise and don’t get it. You lose a team member when they leave.
2. You can’t get a raise because your boss is forced to give your colleague a raise and doesn’t want to have to hand out raises.
3. Your colleague stews and resents you. People say it won’t happen, but I have heard a ton of complaining about how X earns so much and they don’t deserve it from co-workers.
As always, it comes down to "if you want your employee to stay, give him a raise (salary, title, perks, ...) according to his skill BEFORE he tries to leave with a competing offer".
There was a post on hacker news a few days ago where everyone was saying that in their experience, non-minimal pay raises always came with changing job, not with normal raises within their current position. Same for me, pay raises always meant changing job, with my employer realizing "oh wait, we were paying you as X but you're actually worth Y, now that you noticed let us offer you an appropriate salary". No thanks.
That's why when google started giving huge pay raises to a lot of people a couple years ago to keep them I actually thought it was a good idea, and more people should do that; if your employees are good, giving them a raise is usually a lot cheaper and easier than finding someone of the same skill and experience.
1.) Giving big raises to existing employees often causes morale problems with their coworkers. People talk, and they get resentful if someone who (in their view) is working no harder than them is suddenly getting paid $20-30K more. So giving a big raise to one person usually means you have to give it to all of them. There are mitigating circumstances if you can point to some external circumstance that's changed (eg. "Alice got her MBA", "Bob just led this big project that made us $10M", "Cindy got promoted"), which is why companies are more likely to give raises under these circumstances. By contrast, a new employee doesn't have the gossip networks of existing employees, and the business can often invent a reason why they're being paid more (eg. "David brings special skills that are crucial for us right now", "Erin was hired in at a higher level based on her experience at XYZ Corp.")
2.) Usually the company that hires away an employee for much more money has very different profit margins and revenue growth than the one they were hired from, and so they can afford to pay more. This is the economy functioning as normal: employees should jump from companies that are less productive and less profitable to those that are more productive and more profitable, because their labor will net both them and the company more.
3.) There's a cognitive bias known as anchoring, where people form a mental model of how much a person/security/job/product should be worth, and refuse to update that mental model in the face of gradually changing facts. So if you get hired in as a junior dev fresh out of college at $60K/year, your boss's mental model of you will be "that college kid we're paying $60K/year". But after a couple of years of experience, you will be way more valuable to everyone else in the market than the new college kids coming out now, and your salary will reflect that on the open market - but your boss will still think of you as "that college kid we hired for $60K/year".
The factors feed into each other, eg. anchoring is also why companies don't adopt new production techniques and go into new emerging markets that generate higher productivity per #2, higher productivity generates a qualitative difference per #1 that justifies higher wages, anchoring is the reason why bosses & coworkers are blind to minor or gradual differences in productivity per #1, and social customs of the employees often reinforce old production techniques and prevent them from benefitting from #2.
It may be helpful to think of the rational state of the workforce as always requiring retraining, the rational state of business relationships as always hit-or-miss, and the rational state of the job market as always requiring turnover. And then individual companies create bubbles within them to satisfy human needs for security & stability, because our emotions evolved when the pace of change was significantly slower. Because most people have a bias toward stability, it creates economic opportunities for those who rationally choose instability and throw away their old relationships for more productivity and higher profits.
I've always found it strange that companies don't give raises to current employees. A team I am on just lost a good engineer to another company offering him a $30k+ raise. He would have stayed if our company had even given him half of that. Instead, they let him go, and how will have to hire someone else, probably at that higher salary. So weird, and seems to happen a lot.
Hate to say it but I think if you have to ask for a raise you're probably not going to get it (or won't get as much as you want).
I've seen companies let bonafide rockstars with the most domain knowledge in the group walk over money. I just don't get it. It's like someone in the HR industry made up this rule and bad companies stick to it for whatever reason. I'd go as far as saying the majority of the attrition I've seen has been money related, and all of my decisions to bounce have been motivated by money.
Companies will spend $100k+ on Christmas parties, sport box suites, and other marketing/sales related things but won't give a critical piece of the team an extra $25k or whatever? Just mind boggling.
Raising everyone's salary serves as a permanent increase in compensation. It's very difficult to back-pedal from a salary increase. Other perks, which may boil down to monetary compensation, can be added/removed at will with far less push-back.
I vaguely remember a story one time about google (or microsoft) and towels that an old manager told me. But I can't remember what it was. :(
At least where I work, there are annual raises where junior managers recommend which of their employees should receive small/medium/large raises; and only giving small raises does not produce any rewards or benefits for the manager.
If someone is doing great work, why wouldn't a manager recommend they get a large raise? They want to retain good performers, after all.
> I think the problem is largely isolated to companies in decline or stagnant -- which unfortunately is most companies.
I don't think that's the case at all. I think it's just that typical corporate culture (in the US at least) is not accustomed to giving large internal raises to employees based on increases in that employee's market value.
Most companies base their annual compensation on giving people a few percentage points for cost of living adjustment, then a few more percentage points based on performance. They standardize those numbers so they can say, 'you did average, you get 4%' 'you did great this year, you get 6.5%'.
Many, many companies don't factor in at all that employee value on the market can increase much, much faster than 2-8% per year. Even companies making money hand over fist. The usual way of approaching annual raises is wildly unsuited for compensating talent that is in high demand.
This is yet another example of the fallacy of assuming that The Almighty Market will perfectly set all costs.
Most employees do not have the luxury and privilege to be able to demand a raise any time they feel like they deserve one, and actually get it—either directly, from their current employer, or indirectly, by changing jobs.
Yes, this includes tech employees. Remember, we don't all work within the Silicon Valley bubble.
> some employees wished we would give across-the-board pay increases every year instead of merit raises. We weren't prepared to do that, because we believe compensation should be tied to performance... so...the top 15 performers share in our profits"
"Some employees told us they wanted X; we believe in not X, so we ignored their concerns and doubled down on not X."
I meant to say that I don't see why I should give someone a raise simply as a result of increased performance. it's my goal as an employer to extract more value from an employee than they cost.
The only thing that would compel me to give out raises is a change in market conditions, which can usually be detected by an employee threatening to leave for a job which pays more.
(20 person company here) We've been giving raises above what we normally would do simply because it's not fair to have a developer who's 1 week on the job, same skillset, making $15-20k more than someone who's been working with us for 2 years.
When giving the raises, I've been saying "This raise is to keep our pay competitive with the market, and will not affect your regular annual review" (we also give raises to people annually)
I imagine it has to do with avoiding resentment within the team. Folk don't share their starting compensation, but they sometimes share their raise percentage. If they give one person a big raise, they have to give others a big raise too, or suffer a morale hit. Also, from a beancounter perspective, there's no reason to pay more than needed for something. As long as folk aren't quitting, they are paying you enough. I work at a company that tries to prioritize employee well being, and I have gotten very considerate compensation adjustments that track the value I add to the company. Places like that are out there, but they are a bit rare.
>Don't promote people upwards unless they are willing and already working at this level. Give them a simple raise instead.
I don't disagree, but I don't think there's anything simple about the process at all.
1. this obviously works against the company's interests, if they assume the employee is satisfied. short term business sense says they want to get away with paying as little as possible for labor, whereas employees want to be paid as much as possible. It's an eternal tug of war. And to be honest, one the tech sector has relative advantage over compared to other industries.
2. Even if we get over this short term block, figuring out how to give "merit based" raises can get very tricky, very fast. Especially if you leave the onus to not the developer, but to the manager's perception of the developer to determine.
This not only has bias on how much they/the company values a project (e.g. would working on a "simple" adtech feature be worth more than the labor overhauling a failing product to fail less? The ad product makes the company more money after all). But on their bias as a person. Would Manager give Bob a bigger raise because he goes to Karaoke on Thursday with the company, over John who has to get back to his family after work? Worse yet, would Manager implictly give Janet not a different raise than Bob due to subconcious sexism and not actually doing more work (be it preferential towards or against Janet)?
It's a whole mess, which is why companies try to objectify the whole thing. At least there, there is no room bias outside of who can pitch themselves better (if we assume equal work done).
3. Even if we arrange all of the above, raises aren't typically something a direct manager has easy access oo. It involves several lines of commands to appeal to and approval, beholden to a bunch of budget issues beyond a typical manager's control. Even if they truly want to compensate properly, the company itself may simply decide that they'd rather take chances hiring someone new when/if they need to maintain a potential void, over potentially compensating someone who was
I think the 3rd point is an interesting quandry since it goes against the usual mantra of "People leave managers, not companies".
I don't get this. Saying you can't raise someone's salary above a certain % is pure arbitrary BS. There's no rule they can't do it unless they create the rule. This is what keeps salaries depressed if you stay at a company long enough. They'll have to pay market for your replacement when you leave... I mean it's just stupid.
Also, if the person given this raise is not amongst your top performers and now ends up out earning the rest of team, it ends up affecting overall team morale. Your star performers then start to feel short changed and think they have to leave to get a raise.
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