How to react to raise below inflation rate?

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OhTheHueManatee
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How to react to raise below inflation rate?

Post by OhTheHueManatee »

I've been working at a small (~20 people), private, profitable tech company for 2.5 years. It is a good job. I believe my contributions are appreciated by my boss, one of the co-founders. There are no stock options. The company is privately held by the 2 founders.

The company hasn't historically given raises. After year #2, I asked my boss and he said they were going to do something about it.

Today's paycheck reflects that I got a 5% raise on the salary had since 2019. Meanwhile, inflation has increased 6.9% since I was hired, according to CPI-U.

It feels like I'm not keeping up with cost of living and there's no incentive to perform. That said, I'm still well paid. I probably make ~15% more than at least a few others on our team, though I also have more responsibility.

How should I react to this? Here are some thoughts.
  • Is it better to be agreeable, just say 'thank you', and be grateful? It is, 5% more than yesterday.
  • Should I consciously try not to out-perform since there's no reward?
  • Ask for an amount to at least keep up with inflation?
  • Ask what I can do to merit a performance increase?
    • There is no open role to move into or ladder to climb. Even the founders are individual contributors.
  • Ask for a 10-15% raise along with a justification of achievements?
    • Not directly related, but the company's revenue has doubled since 2019 while expenses have not doubled. The company is profitable.
  • Ask my boss how he'd react if he were in my shoes?
Feedback on these or other suggestions are greatly appreciated. Thanks!
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Bigt3142
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Re: How to react to raise below inflation rate?

Post by Bigt3142 »

When I got a raise that was less than expected based on my performance, I asked my supervisor what I would need to do to get a better raise next time. My boss listed some goals. I exceeded the goals and reminded my boss about his commitment if I reached the goals. The next raise matched my expectations. If they can't give you anything concrete, you either need to find another job or accept that you're not going to get good raises with your current employer.
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Re: How to react to raise below inflation rate?

Post by fabdog »

Any idea how your pay stacks up vs what similar jobs in the industry pay? If you are already very well paid vs what your skill set would command, then 5% may be a very nice raise.

If you're underpaid, then that's a way different story... and focusing on what your raise was vs CPI won't help address the issue
at the end of the day you (and your boss) should be focused on making sure the pay is competitive for the work... not getting stuck on CPI

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Re: How to react to raise below inflation rate?

Post by psteinx »

OhTheHueManatee wrote: Fri Oct 15, 2021 3:01 pmThat said, I'm still well paid. I probably make ~15% more than at least a few others on our team, though I also have more responsibility.
What matters most is not how well you're paid relative to others at your small company (especially those in lesser roles).

Rather, what are you paid in relation to your market value (i.e. OTHER companies).

If you're paid below market value, and you're willing to leave or at least test the market, then do so.
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Re: How to react to raise below inflation rate?

Post by psteinx »

OhTheHueManatee wrote: Fri Oct 15, 2021 3:01 pm Not directly related, but the company's revenue has doubled since 2019 while expenses have not doubled. The company is profitable.
Also - wow.

If this is accurate (2x revenue, 1x expenses), then the PROFITABILITY of the company is likely fabulous (assuming it was at least break-even-ish, two years ago). While that's not the only factor tying to worker comp, it's certainly something to consider in thinking about how aggressively to push for a raise...
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Re: How to react to raise below inflation rate?

Post by 6bquick »

I'm going to go the other way, with some caveats...

Assuming you're not grossly underpaid for your title/level/position etc. compared with your inter-company peers.
-AND-
you're relatively happy with your current job overall.

5% YoY is a pretty good raise rate. I know this is two years' worth, so less ideal. inflation is also pretty abnormal as of late, so while it may be tempting to judge COLA raises on them, historically speaking 2.5% YoY is not bad. I think I'd count my blessings. you asked for a raise and received one.

Henceforth, bigt had a good idea upthread. ask for some goalposts to hit to get 6, 8, 10% more next year, and then hit those and remind boss if needed.
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123
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Re: How to react to raise below inflation rate?

Post by 123 »

It may be time to search for greener pastures. Polish up your resume and see what's out there. Switching jobs right after a raise actually maximizes the value of that raise (subsequent employers don't know how long you've had it unless you tell).
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Re: How to react to raise below inflation rate?

Post by fortunefavored »

Interview externally and see what you're worth. It is the only way to tell. Just randomly asking for more money is unlikely to be persuasive, regardless of strategy.

Maybe you're wildly overpaid and you should be happy. Or wildly underpaid and there is no way for them to match it anyways.
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OhTheHueManatee
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Re: How to react to raise below inflation rate?

Post by OhTheHueManatee »

Thanks for the great responses.

@Bigt3142: there is a bit of stoic wisdom in what you say. Recognize the situation for what it is, if there's not much to expect, temper expectations.

@fabdog: I'm not underpaid. You have a good point about the CPI focus. I guess the part that bugs me is that I'm making less than when i started, on a real basis. Meanwhile, I'm more valuable to the company now, based on responsibility and unique contributions.

@psteinx: I wouldn't leave over this. It's a good job. To add to the list of considerations in determining one's pay, I guess a part of me feels one's impact to the company should play a part. But that's from my perspective, and I'm obviously biased.

@6bquick: Thanks for the affirmation.
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BolderBoy
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Re: How to react to raise below inflation rate?

Post by BolderBoy »

OhTheHueManatee wrote: Fri Oct 15, 2021 3:01 pm
  • Is it better to be agreeable, just say 'thank you', and be grateful? It is, 5% more than yesterday.
I would do this and then start looking around at other jobs. If you find you are being underpaid for what you do, then I would take that info to your bosses and see what they say.

Be prepared to move on if you don't like the answer.
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Re: How to react to raise below inflation rate?

Post by bottlecap »

I think this is just the way it's going to be for at least a few years, perhaps longer. Everything you describe is exactly what inflation does. No company will fully keep up with it. Few could if they wanted to.

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Re: How to react to raise below inflation rate?

Post by stoptothink »

bottlecap wrote: Fri Oct 15, 2021 3:56 pm I think this is just the way it's going to be for at least a few years, perhaps longer. Everything you describe is exactly what inflation does. No company will fully keep up with it. Few could if they wanted to.

JT
+1 If OP isn't underpaid based on comparable jobs, I don't understand the issue. This is inflation.
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Re: How to react to raise below inflation rate?

Post by MrJedi »

Inflation is not really the right way to assess it. You need to gauge your actual market value against others. Just because the price of a bag of chips went up does not inherently increase your market value and what a company is willing to pay you.
Ask my boss how he'd react if he were in my shoes?
I also just wanted to say this is passive aggressive and may not be received well. If you are disappointed or expecting more, just say it directly.
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ClevrChico
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Re: How to react to raise below inflation rate?

Post by ClevrChico »

MrJedi wrote: Fri Oct 15, 2021 4:02 pm Inflation is not really the right way to assess it. You need to gauge your actual market value against others. Just because the price of a bag of chips went up does not inherently increase your market value and what a company is willing to pay you.
Ask my boss how he'd react if he were in my shoes?
I also just wanted to say this is passive aggressive and may not be received well. If you are disappointed or expecting more, just say it directly.
I agree 100%. If there was deflation, how would OP feel about getting a paycut?

5% is pretty solid, and I've found that some years you come out ahead, some you don't. It's the occasional promotion that really grows salary.
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Re: How to react to raise below inflation rate?

Post by Watty »

OhTheHueManatee wrote: Fri Oct 15, 2021 3:01 pm The company is privately held by the 2 founders.
I once worked for a family owned company.

One of the problems there was that their attitude was that they looked at every dollar that was spent on salary or anything else was a dollar that came directly out of their pocket. In a lot of ways they were right.

Another problem that you may be facing is that the founders could be looking at selling the company in the near future. My accounting is a bit rusty but one of the problems with this is that the eventual sale price might be calculated with a multiplier like 20 times earning. The gives them an incentive to keep salaries as low as possible since if they pay you an extra $1,000 then that could reduce the sale price by $20,000.

The company has made its position clear. If I was in your situation I would keep working hard and doing a good job but start looking to see if you can find a better position somewhere else. If you find something better that is great, or you might not find anything else that is better and realize that your current job is pretty good.
Last edited by Watty on Fri Oct 15, 2021 4:31 pm, edited 1 time in total.
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JoeRetire
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Re: How to react to raise below inflation rate?

Post by JoeRetire »

OhTheHueManatee wrote: Fri Oct 15, 2021 3:01 pm How should I react to this?
Sorry, but I never understand when someone asks "How should I react?"

You react based on the way you feel.

If you feel you are being ripped off, you get angry, find a new job, and leave this one behind.
If you feel that you would like a bigger raise, but you are paid well enough to stick around, then you thank them for the raise, perhaps say "I wish it kept up with inflation", put your head down and work hard.

In the 70s inflation was high. My boss gave me an 18% raise. I told him it wasn't enough and that it wasn't keeping up with inflation. He indicated that it was the best they could do. Two months later I left for a job at 25% higher.
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Charon
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Re: How to react to raise below inflation rate?

Post by Charon »

Short term doesn't matter; long term does. Up to you if you want to hang around long enough to see what your long-term average increase is.

Meanwhile, I'm envious of your short-term average. We have a multiyear union contract that specifies 2% COLA, and last year's was foregone due to a recession in my industry. So while you've gotten 5%, most people here have gotten 2%.
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Re: How to react to raise below inflation rate?

Post by Normchad »

This is why it’s good to own the company. Keep the profits for yourself.

There is no law or rule, nor should there be an expectation, that people get cost of living raises that match inflation. A lot of people seem to think there should be though.

Your pay should match your performance. If you’re performing better, or contributing more, then you should be worth more. Maybe your company doesn’t see it that way, or maybe they don’t value your contributions that way.

You should go do some interviews. See what the correct market rate for your skills and experience are. Then decide what you want to do. If you’re underpaid, you will find out quickly. The real question might be, how underpaid are you? Who knows, it could be 40%, etc.

Everybody should do period interviews for this very reason. Doesn’t mean you need to hop jobs, but this is the way to determine what you’re worth in the market place.
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Re: How to react to raise below inflation rate?

Post by OhTheHueManatee »

It probably is a good idea to come up with some justification of worth. It's been a while since I've interviewed anywhere. Truth be told, I've made more at before at previous employers. I've also made less. The average market salary is below what mine, but I believe I'm an above-average performer. I think my employer would agree with that as well.

A part of me feels/hopes that a growth in salary could grow with the value of my contributions to the company. I juxtapose this to the idea of asking for a raise because of what I could get elsewhere.

+1 If OP isn't underpaid based on comparable jobs, I don't understand the issue. This is inflation.
@stoptothink: I guess the post title is misleading.

What bugs me is knowing I'm making less now than I did 2 years ago. That's where the inflation idea kicks in. The real issue is feeling like I'm being paid below my merits, as judged by performance. We don't have 'performance reviews' as a company.
I also just wanted to say this is passive aggressive and may not be received well. I
@MrJedi I understand how that could come out that way, and only worded it such for brevity in the post. I meant this as a short way to suggest I ask my boss the reasoning behind the raises and justification. My fault here for being over-simplistic.

@Watty solid reasoning. I think the main truth is the company doesn't do budgeting/forecasting very well and this was their attempt.
Sorry, but I never understand when someone asks "How should I react?"
@JoeRetire: How I really feel is underpaid based on merits and all the contributions beyond the experience of the average employee in the company. I really appreciate the responses to this to help me sanity-check my reaction and normalize it some. In truth, this is a great job and I can continue working here for the same pay. What I'm afraid of is in the back of my mind feeling like I'm being taken advantage of. E.g. why work as hard / care when it's not going to make a difference. And try not to be frustrated when others get rewarded the same for less work. I know I shouldn't base my emotions based on what others do... I only say this to honestly relate how it really feels sometimes.
Your pay should match your performance. If you’re performing better, or contributing more, then you should be worth more. Maybe your company doesn’t see it that way, or maybe they don’t value your contributions that way.
@Normchad: Yeah, this captures in a large way how I feel. Also: "This is why it’s good to own the company. Keep the profits for yourself." <- Definitely agree there. Perhaps for peace of mind, looking around is wise.
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Re: How to react to raise below inflation rate?

Post by rockstar »

The only way I'm going to get a raise above the current inflation rate is to change jobs. I think, this is true for a lot of people today.

Your best bet is to change jobs or deal with it.
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Re: How to react to raise below inflation rate?

Post by esqu1re »

For reference, the federal government gave its civilian personnel a 2.7% COLA increase for next year and 1% this past year. Your 5% for 2-3 years of work is on par with what the government has been tracking as COL increases.
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Re: How to react to raise below inflation rate?

Post by stoptothink »

OhTheHueManatee wrote: Fri Oct 15, 2021 7:33 pm
@stoptothink: I guess the post title is misleading.

What bugs me is knowing I'm making less now than I did 2 years ago. That's where the inflation idea kicks in. The real issue is feeling like I'm being paid below my merits, as judged by performance. We don't have 'performance reviews' as a company.
This is likely true for most of the workforce not in entry-level jobs over the past 2yrs, unless they job-hopped. A 5% raise in 2yrs in the corporate world without a promotion isn't by any means low or odd, even if inflation is unusually high at the moment. Either get over that irrational thought or start looking for other jobs; which may or may not be fruitful. Your feelings are irrelevant.
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OhTheHueManatee
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Re: How to react to raise below inflation rate?

Post by OhTheHueManatee »

Either get over that irrational thought or start looking
There’s understandable value in coming to peace with one’s situation. I don’t know if it’s fair to characterize as unfair the question if one should ask for a bigger raise if one thinks there’s genuine merit.

One consideration is that my replacement cost would probably be much more than getting a bigger raise. Recruiter commissions alone would be substantial. Not to mention opportunity cost from lost productivity.

The conditions under which I’d ask for a bigger raise assume if I genuinely think it’s merited. I’m also relatively certain that if asked, it’d be granted.

I don’t think it’s irrational to consider there are more than 2 options- grin and bear it or leave.
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Re: How to react to raise below inflation rate?

Post by stoptothink »

OhTheHueManatee wrote: Sat Oct 16, 2021 7:50 am
Either get over that irrational thought or start looking
There’s understandable value in coming to peace with one’s situation. I don’t know if it’s fair to characterize as unfair the question if one should ask for a bigger raise if one thinks there’s genuine merit.

One consideration is that my replacement cost would probably be much more than getting a bigger raise. Recruiter commissions alone would be substantial. Not to mention opportunity cost from lost productivity.

The conditions under which I’d ask for a bigger raise assume if I genuinely think it’s merited. I’m also relatively certain that if asked, it’d be granted.

I don’t think it’s irrational to consider there are more than 2 options- grin and bear it or leave.
Of course there are more than 2 options, a clear 3rd is to ask for more from your current employer. Just prepare; if you come with "well, I am technically earning less than 2yrs ago" you will be laughed out of the room. Considering OP has said that they believe they are overall adequately compensated relative to comparable jobs (it's just the less than inflation raise they are bugged about), I'd like to hear them practice that pitch.
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Re: How to react to raise below inflation rate?

Post by teuton33 »

No stock options or RSU? You are likely getting ripped off. I would get a new job.

Start leetcoding. I have been at a FANG for a few years now. Wish I put in the effort to get in a long time ago. The pay is amazing
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Re: How to react to raise below inflation rate?

Post by Grt2bOutdoors »

What other fringe benefits are you getting besides salary?
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Re: How to react to raise below inflation rate?

Post by OhTheHueManatee »

teuton33 wrote: Sat Oct 16, 2021 8:04 am No stock options or RSU? You are likely getting ripped off. I would get a new job.

Start leetcoding. I have been at a FANG for a few years now. Wish I put in the effort to get in a long time ago. The pay is amazing
Thanks for the tip. I’ll look into that.
Grt2bOutdoors wrote: Sat Oct 16, 2021 8:08 am What other fringe benefits are you getting besides salary?
Full remote and flexible hours. Decent healthcare. Unlimited PTO which no one really maximizes. We have a 401k but no match or employer contribution. Thats about it.
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Re: How to react to raise below inflation rate?

Post by fortunefavored »

I don't mean to be insulting.. but how long have you been working?

Some of your comments come across as a bit.. inexperienced. Companies don't care about the value you produce, or inflation, or your "replacement cost." This is part ego, and part practicality - if they do it for you, they have to do it for everyone.. and then they're either out of business or less profitable.

They want to pay as little as possible for as much work as possible. At an individual level, yes, your statements are correct.. at a macro level, they would be far less profitable if they attempted to match inflation, pay for value, or ensure they covered replacement cost. So they typically don't.. unless you have the leverage of another offer.. and even then, it's usually better to just take the other offer.
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Re: How to react to raise below inflation rate?

Post by JoeRetire »

OhTheHueManatee wrote: Fri Oct 15, 2021 7:33 pm@JoeRetire: How I really feel is underpaid based on merits and all the contributions beyond the experience of the average employee in the company. I really appreciate the responses to this to help me sanity-check my reaction and normalize it some. In truth, this is a great job and I can continue working here for the same pay. What I'm afraid of is in the back of my mind feeling like I'm being taken advantage of. E.g. why work as hard / care when it's not going to make a difference. And try not to be frustrated when others get rewarded the same for less work. I know I shouldn't base my emotions based on what others do... I only say this to honestly relate how it really feels sometimes.
This is understandable.

So you need to dig into your feelings and decide if they are strong enough to find a new job, strong enough to have a discussion with your boss about your feelings, or just not worth doing anything.

IMHO, choosing to stop working hard because you feel underappreciated would be the worst possible path. If you feel that strongly, I'd advise finding a new job where you can feel good about working hard and moving on. In the long run, this provides for a more fulfilling and financially rewarding career.
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Re: How to react to raise below inflation rate?

Post by furiouschads »

When Jezebel and BLS coincide, it is time to break out the Johnny Paycheck.
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Re: How to react to raise below inflation rate?

Post by furiouschads »

Regarding measures of inflation, most headlines feature the national CPI-U. But inflation can be different at the local level, and CPI-U is published for some locales. For example, here it is for the San Francisco area.

But what about my industry?
BLS also publishes QCEW wage data by county, including bonuses and stock options. This BLS QCEW data isn't an estimate. It is summed from 11 million quarterly reports, filed by every employer who has to pay unemployment insurance premiums. Here is an example showing wages for Computer systems design in each county in California. Same page works for other industries and other states. Alabama, Texas, Nebraska, etc. Puerto Rico and the US VI too.

Other QCEW data display options are available here.
Normal is an illusion. What is normal for the spider is chaos for the fly. --Charles Addams. #613 in 2022 BH prediction contest. #42 in 2023. Not that I am keeping track.
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OhTheHueManatee
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Re: How to react to raise below inflation rate?

Post by OhTheHueManatee »

JoeRetire wrote: Sat Oct 16, 2021 8:49 am So you need to dig into your feelings and decide if they are strong enough to find a new job, strong enough to have a discussion with your boss about your feelings, or just not worth doing anything.

IMHO, choosing to stop working hard because you feel underappreciated would be the worst possible path. If you feel that strongly, I'd advise finding a new job where you can feel good about working hard and moving on. In the long run, this provides for a more fulfilling and financially rewarding career.
Much appreciated. This seems right
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Re: How to react to raise below inflation rate?

Post by Admiral »

For the past 13 years I got 3.0-4.0% raises per year. One or two times I made a case that I was underpaid relative to what people in my industry were making, using data. Both times I got large bumps. However, in 2020 there was a wage and hiring freeze. We got nothing. This year, 4.0%.

But...

I get 4% of base salary into retirement, plus another 5% match, plus good healthcare, plus flexible work hours (including remote), plus college education (mostly, not completely) paid for for my kids. I am not leaving.

When I see your lack of benefits, I would say "walk." Isn't the whole point of working for these small start ups to get stock options? And no retirement contribution? That would be the line for me, ethically and morally. (I realize others feel different.)

It's a strong job market. I would put my resume out there. They might match an offer, but the other things (lack of benefits) won't change, so if it were me, I would leave.

I recently heard about a job that pays $250k, fully remote, running social media feeds for Netflix shows. Not my thing, but... wow.
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Re: How to react to raise below inflation rate?

Post by babystep »

rockstar wrote: Fri Oct 15, 2021 7:35 pm The only way I'm going to get a raise above the current inflation rate is to change jobs. I think, this is true for a lot of people today.

Your best bet is to change jobs or deal with it.
+1
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