Friday, March 13, 2009

The Fairness of Getting a Raise

A reader recently asked me how to request a raise when you are making more money than others in your office. Before answering this question, I would like to point out that asking for a raise is not always a good idea, and that one should know one's market worth before trying to get an increase. If you decide to ask for a raise, there is such a thing as the correct way to ask for more money. Now that I have gotten this out of the way, let me address the specific question.

What others in your office make should have very little bearing on your ability to ask and to get a raise. Businesses should be run as meritocracies, with the best performing players receiving a disproportionate share of the rewards. More importantly, you need to understand that your compensation can lie anywhere on a range of values. The top end of this range is the value that you create for your organization. No sane employer will pay you more than the value you bring into the company. The low end of the range is the minimum amount for which you are willing to show up in the morning. Any value in between those two extremes is a possible and valid outcome for your compensation. Where you actually are on this range depends on a number of factors, including:

Your Negotiating Skills - if you don't ask for a raise, don't expect one. If you don't actively negotiate your pay and effectively make your case based on market data, don't expect your compensation to be on the high end of the scale.

Office Policy - some organisations have pretty inflexible payment structures. Government and unionized organizations are the best examples of this. Take for example most public school teachers - the best ones make the same amount as the worst ones, accounting for location and seniority. In fact, that's one of the things that is so wrong with our public education system. Since people are greatly motivated by financial incentives, the lack thereof leads to mediocrity and to poor performance. That's one of the reasons that I am very suspicious of labor unions.

Your Relative Performance - note that I am not talking about your absolute performance. I am talking about your job performance as it compares to the performance of your colleagues. You may be a perfectly competent physicist, but if your co-workers are Albert Einstein and Enrico Fermi, don't expect to be rewarded based on your performance... your boss always judges your performance compared to that of your peers.

Economic Environment - in a free economy, you are an economic asset and your price is set by supply and demand. In an economic downturn, with many competent people searching for work, your price diminishes, since you are potentially easier to replace.

In short, if you are paid more than your colleagues, but deliver outsized performance, if you can demonstrate your worth to your boss, and if your organization does not have an inflexible compensation policy, what your colleagues make should have little impact on your ability to negotiate better pay.

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