Workplace Analysis: Are We Seeing the End of Annual Pay Raises?

The days of receiving an annual raise so a company can express its appreciation of your loyalty are certainly not completely extinct, however, recent data has shown its prevalence and frequency to be slowly, yet markedly, sinking.  A portion of this may be due to a growing decrease in company loyalty by younger workers’ tendency to switch employment gears at a notably higher rate than their much older counterparts.

In spite of this environment (and in many cases, due to this environment), it’s important for workers to know their worth in the job market. Having a clear perspective of your value as an employee will not only strengthen your confidence in requesting a pay increase, but it will offer your superiors and the company’s decision-makers an indisputable perspective on your actual value to their company.  Additionally, for every young worker eagerly looking toward the next employment horizon, there are those who wish to obtain a sense of stability where they are.

That being said, in those companies and institutions where annual or semiannual reviews are the norm, the overwhelming advice is to visit sites such as or and find out where you fit into the equation.  Knowing your worth is the key to maximizing your potential.

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On a parallel note, female employees are well aware of the fact that, where sufficient data exists to compare earning potential between men and women, they’re still only earning $0.80 on the dollar compared to men.  In this case, the fadeout of the annual raise may actually work to their benefit; and here’s why:

Changes on the Horizon

Companies moving away from fixed annual increases do not lessen your burden of remaining aware of your value to the company; in fact, if anything, it amplifies it.  The new corporate strategy is to provide bonuses for certain fixed accomplishments, profit sharing incentives for increased sales or productivity, and performance raises based on merit.

It doesn’t matter if the “reward” for landing the “Johnson account” is two paid weeks at the company condo in “San Tropical”, 2 percent of net sales, or $5,000 in cash; gender simply doesn’t enter into the equation when the rewards are fixed.

From the businesses’ point of view, this meritocracy is probably the most sensible approach.  It harkens back to bygone days where everyone was paid the same wage to start and if they were more talented and productive than their peers, they were rewarded with an increase in salary.

In a capitalistic system, hiring an employee is an investment.  If that investment pays off, that person enjoys an increased dividend.  If they continue to do the same reliable job without a significant improvement, shouldn’t they get the same reliable wage that reflects the amount of contribution that they make?

However, when you do make a significant new contribution, you should be prepared to enumerate your achievements and attach a dollar-value to them.  This system rewards competence, achievement, and innovation.

A meritocracy is also a reasonable system from the business’ perspective, since they get to pay for tangible results.  It does away with the expectation that people will automatically get a raise (albeit, usually a small one in the neighborhood of 3 percent) for the mere reason that they work there, even if they haven’t met their annual goals or requirements.

The Drawbacks

Those individuals who have reached the point in their lives where they are now winding down their careers may not see another raise before they retire.  If you can’t show growth, improvement, or new value, this system doesn’t seem to accommodate you.  Just “doing your job” means your remuneration stays unchanged.

The same could be said for “dead-end” jobs which provide no opportunities toward new territory.  If you can’t find a way to show improved value for the company—how you increased their bottom line—you’re in the same boat.

It puts the obligation back on the employee to earn their bonuses, raises, or perks.  Those who just “drift along” are certainly due for a shock!

Another drawback is making sure that managers review every single employee on time, or regularly, so that raises, bonuses, and rewards can be handed out when appropriate.  If a supervisor lags behind in his or her responsibility to complete reviews, it can trigger a great deal of ill-feelings. Once you switch to a reward system you must deliver those rewards on time.

That’s the sort of responsibility (or irresponsibility) that might mean a manager or supervisor doesn’t meet their own goals for a raise based on competency.  A meritocracy means that everyone must merit their rewards.

The Big Advantage

In any meritocracy, it is important to have a readily available list of expectations and goals for employees.  If you “improve (A)” you get reward (A); if you “develop (B)” you get reward (B); if you “increase (C)” you get reward (C).  This gives them very specific goals to shoot for so that they can obtain the greatest possible rewards for their efforts.

Let’s consider (A) as the collection rate on delinquent accounts; (B) might represent creating new software programs; and (C) could be an intangible, such as improving Customer Satisfaction.  The latter is important so that this aspect doesn’t get overlooked as they strive for more clearly defined rewards.

Ultimately though, it clearly indicates what the company deems to be important and worthy of an employee’s diligence.  It helps to eliminate misdirected effort and wasted time.  You could conceivably find someone who ordinarily might be considered a middle-of-the-pack employee, or even an under-achiever, who suddenly sees specific tasks and guidelines that could allow them to excel.  This could turn them into a top producer.

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The Takeaway

Employers often looked at a meritocracy as a cost cutting measure, since they only pay for positive performance improvements.  Some jobs however don’t lend themselves to a meritocracy format.  A receptionist or a bookkeeper, perhaps, doesn’t possess a large amount of room to change the company’s bottom line.  Unless you can provide specific goals for them to target, it might be better to leave them on the older system.

More importantly, in the example above suggesting goals (A), (B), and (C), the items (A) and (B) seem to be clear-cut and settled, with little room for interpretation.  Goal (C) of “improving Customer Satisfaction” can be very subjective.  If you can’t find a clear way of measuring it, one employee might earn 3/5 and another could receive 5/5 for no discernible reason.  This can cause a certain amount of turmoil and resentment since it is going to result in a different level of compensation.

Be thoughtful and wise when you implement a new system like this.  Don’t jump in with both feet simply because it’s going to save the company money.  Explain it well; use the old system until a specific date so that no one is blindsided by the change.  This change is already occurring in the highest levels with the most costly employees, but it seems inevitable that it’s going to trickle down.  Be ready for it.


Fred Coon, CEO


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