Which Raise is Best for You?

It’s exceptionally good news when you discover you’re getting an increase in pay. However, there’s a variety of possibilities for exactly how a raise can manifest.

Some companies use an annual raise that works as a cost of living increase. This increase in pay is applied across all employees to increase all workers’ salaries, permitting incomes to keep up with inflation.

Some businesses offer bonuses, called merit-based increases, that are calculated using a metric to quantify and reward each worker ‘s professional contribution. Using merit-based raises or other variable pay such as bonuses tends to be preferred over applying a yearly universal cost of living increase.

Following are some other distinctions in between a cost of living increase and a merit-based raise, in addition to exactly what each intimates about staff member performance.

Cost of Living Increase

Federal government jobs, as well as some non-profit sector positions, abide by the cost of living income increase design. In December 2015, for example, President Obama revealed that federal staff members would make a 2016 pay increase of 1.3%. Those in more pricey cities like Washington D.C. or San Francisco received a bit higher raise to accommodate their greater cost of living. When a flat-rate raise is offered to all workers, it is probably a cost of living increase.

While a pay raise is always a good thing, it can be a little depressing when everybody makes the same pay raise, no matter how well everyone performed. In many cases, a merit increase can be offered in addition to the cost of living increase. Consequently, the raise serves both as a method to make sure that all workers get a required increase, and outstanding employees earn their deserved recognition.

Merit-based raises

It’s been noted that companies are shifting towards variable pay based upon performance rather than offering cost of living increases– although pay ranges might be changed due to basic market pay trends, as positions end up basically increasing or decreasing in demand in the regional job market.

Variable pay consists of merit-based raises and bonuses. These are usually determined by using a formula to assess employees’ performance then dividing up the offered funds based upon which staff members made the highest scores.

A current settlement report examined trends based upon survey results from 7,500 organization leaders in several essential markets. The report discusses how merit is still most significant, with 50% of employers giving raises based on performance. However, bonuses are likewise a major consideration for compensation plans this year. The report keeps in mind that the number of employers providing bonus pay has actually gradually increased. The data reflects that 74% of the businesses surveyed use bonuses now , compared with 69% in 2013.

Many employers discover that more diverse payment plans are attractive to their workers. The options vary, from merit-based pay plans, to nondiscretionary incentive-based pay strategies, to discretionary bonus strategies, stock options, educational and developmental opportunities, as well as other advantages like gym memberships or catered lunches.

Instead of universally applying their resources to a cost of living increase, employers are more likely to utilize merit-based increases and other incentives that recognize outstanding performance and ultimately develops more overall satisfied employees.

Terrific to know when you’re walking into your next performance evaluation!