8 different reasons for a pay raise
For employees, understanding a company’s pay structure can be confusing.
Sure, it’s fairly easy to grasp that senior leaders are getting paid more than entry-level employees, and it’s easy to understand why.
But what’s harder to grasp is how and why individuals in different roles get paid differently.
This confusion comes from the fact that companies use different pay progression structures. That is, they have different rules and ideas on how and when employees should be given a pay raise.
For many, it’s not obvious that you can actually ask for a pay raise (yes, you can!).
And if you’re going to do that, it’s crucial to understand the different pay progression types and how they apply to the approach your company takes.
This article will describe how these types of pay progression work and provide a simple framework for approaching your manager to ask for a pay raise.
What is a pay raise?
A pay raise is an increase in the amount of money you receive (hourly or annually) for the work you complete at your job.
Pay raises typically come in the form of a dollar amount or a percentage of your current earnings.
For example, a $2 an hour raise for someone making $12 per hour would put them at $14 an hour.
However, if that person was instead given a 10% raise, they’d earn $1.20 (10% of $12) more per hour, totaling $13.20 an hour.
When can I get a pay raise?
Your opportunity to get a pay raise depends mainly on the pay progression structure your company uses.
For example, some companies choose only to issue pay increases as part of their annual performance review program.
Others will increase pay based on performance, promotion, or a variety of other factors.
Let’s discuss the eight different types of pay progression plans to give a bit more context and understanding of how this process works.
8 different pay progression types
The first thing to understand about the different kinds of salary increase structures is that not all of them are entirely under your control.
Some pay progression types are completely under outside influence.
In this list, the first four types of pay increase are things you can influence. The last four are mostly externally influenced, though you have some control (such as how long you stay at the job).
1. Individual competency
Perhaps the most rewarding type of compensation increase is being rewarded for your individual competency and performance at work.
Companies that use an individual competency pay progression structure give pay raises based on the individual employee’s performance, usually measured by specific KPIs (key performance indicators) and targets or goals.
For example, a call center rep who routinely answers their required quota of calls, meets response time targets, and receives few complaints may be rewarded for their competency with a pay increase.
2. Skill development
Another type of pay progression structure is to reward workers for specific skills they’ve developed for their job.
For example, in factory work environments, it is required that a percentage of employees be trained in first aid. The company may choose to give a pay raise to these workers in recognition of that skill development.
Similarly, factory workers who receive their forklift license may be offered higher pay as a result.
3. Team performance
Similar to the individual competency pay progression structure, some companies issue pay adjustments based on team performance.
For example, a removals team may be given a number of targets to hit for the month (number of moves completed, breakages under a certain value, no use of outside truck hire).
If the team performs over and above these expectations, the company would then give everyone on the team a pay raise.
4. Promotions
Short of finding a new job altogether, promotions are the most common reason employees receive pay raises.
Promotions typically come with increased responsibility, which is reflected in the employee’s salary increase.
5. Length of time employed
Around 8% of salary increases come as a result of the length of service to a company.
For some companies, this may be in the form of an annual pay increase. For others, employees receive pay raises at key milestones, such as 5, 10, or 20 years at the organization.
6. Market rates
Increases in market rates can be an important driver for employee salary increases.
Suppose you’re a qualified electrician, for example, and there happens to be a shortage of electricians in your area. In that case, this increased demand will drive wages up.
It’s not unreasonable, then, for you to consider looking for a job elsewhere if you can earn more money, which is why your company may choose to give pay raises in accordance with market rates (so you stay with them).
7. Company performance
Wage increases can also be given as a result of company performance.
For example, suppose you’re a teller at a local hardware store. In that case, your hourly wage might increase each year, provided the company exceeds its targets.
8. Inflation-linked pay raises
Inflation is an economic term that describes the general increase of goods and services. When you hear a phrase like “inflation is at 3%”, that means that consumer prices went up by 3 percent.
If everything costs 3% more, then employees’ incomes must increase by at least this amount to keep up with rising living costs.
For this reason, many companies also opt to provide inflation-linked pay raises each year.
A good example of how this works is President Biden’s federal employee pay increase for 2022. In this raise, federal employees were given a 2.2% raise and a 0.5% increase in locality pay.
A federal pay raise such as this goes some way to combat the increasing costs of living due to high inflation.
How to ask for a pay raise
Approaching your manager to ask for a pay raise can be a little nerve-wracking, especially if you’ve never done it before (two-thirds of us never have!)
Before you go knocking on your boss’s door, prepare yourself with these six steps.
1. Determine how your company makes those decisions
Above, we’ve discussed eight different structures that companies use to assess whether or not to give an employee a raise.
The first thing you’ll want to know is which structure your company favors. Bear in mind that some companies will use a combination of factors.
For example, a business might make pay increase decisions based on company performance, individual performance, and skills enhancement.
You may be able to find this in your employment agreement or in the company wiki.
Alternatively, speak with your HR department to find out more about how your company makes these decisions.
You might say, “Hi [their name], I’ve been learning about different pay progression structures, and I’m wondering if you can tell me about how [your company] assesses salary packages and makes decisions about potential pay raises.”
2. Put together your case based on those factors
Now that you have a good understanding of the information your company uses to make pay raises decisions, you need to think about how you can make a convincing case for the company giving you a raise.
For example, if the company rewards employees based on individual performance, ask yourself:
“In what ways have I been consistently performing above expectations? How can I demonstrate and communicate that?”
Alternatively, suppose your company policy is to pay market rates. In that case, you’ll want to do some research on job boards to get an understanding of what other companies are offering for similar roles.
3. Find the right time to ask
Part of your success in obtaining a raise will be in finding the right time to ask.
For example, you don’t want to approach your boss during a particularly busy week when the company is under pressure toward the end of the month.
You’d have a better chance of holding that conversation with your manager when they aren’t under pressure. Even better, look for an opportunity to open up the discussion when the company is performing well.
Suppose you’ve just had a great quarter, for example. In that case, managers will be more optimistic about future performance, and they will be more open to having a conversation about a pay raise.
4. Set up a meeting
When you do find the right time to approach your manager, try not to do it in a way that feels like an ambush.
The best way to do this is to ask for a meeting to discuss your request, rather than coming into their office and laying out your justification right away.
Try this:
“Hi [their name], I’d like to book some time with you to discuss my situation regarding wages/salary. Would you have some time later this week?”
Asking for a meeting to discuss a pay raise shows respect, allows your manager to prepare (for example, they may want to review your performance reports), and also shows a level of seriousness and professionalism that will play in your favor when you discuss your reasons for wanting a raise.
5. Lay out your reasoning
Once you’ve secured the meeting, you’ll need to state that you’d like a raise and describe why you feel you deserve one.
The structure of your conversation should look like this:
Thank your manager for putting aside the time for the discussion.
Let them know that you’d like to request a raise.
Discuss your understanding of how the company makes those decisions (as per step one).
Justify your request (your performance, skills improvement, changes in market rates, etc.).
Ask them if they feel your request is reasonable.
6. Expect to negotiate
Lastly, you should expect your boss to ask further questions in this conversation. They might ask for clarification around your performance and reasons, and they’ll quite likely want to know how much extra money you’re looking for.
It would be wise, then, to be prepared with a number in mind. It’s a tricky balance between asking for too much and underselling yourself. You’re probably going to end up negotiating anyway, so calculate it like this:
Let’s say you’re on $20 an hour, and you’d be happy with a 5% raise (which would put you on $21 an hour). Start with asking for 10%, which is still not an unreasonable request (if you can justify it) and leaves you with plenty of wiggle room.
When you go into this conversation, you should be prepared to be told “no” outright.
Not every pay raise request results in an actual pay raise, so prepare yourself for this possibility but know that even if your request is declined, most managers will gain respect for you for asking. Remember, most employees never do.
Want to learn more about negotiating salary? Check out our guide: How to negotiate salary: your complete guide to get a better offer.
FAQ about pay raises
Let’s answer some common questions about pay raises, so that you’re more prepared to ask for your next raise.
What is a good pay raise?
The current average pay raise is between 3% and 5%.
Anything above 5% would be considered a good pay raise, provided inflation is around 2%.
Is a 5% raise good?
Considering that the current average pay increase is 3-5%, a 5% raise is pretty good.
It depends somewhat on the context, however.
A 5% raise for your annual performance review could be considered good, but if you’re stepping into a more senior role, a raise of 10-20% might be more desirable.
What is the average wage increase in 2021?
The average wage increase in 2021 is 3%.
Ready to ask for a pay raise?
By now, you should have a good idea of how your employer approaches pay raises or at least know about the eight different kinds of pay progression structures so you can ask and find out.
Getting ready to ask for a raise?
Remember, follow these steps:
Determine how your company makes those decisions.
Put together your case based on those factors.
Find the right time to ask.
Set up a meeting.
Lay out your reasoning.
Expect to negotiate.
And remember, if you don’t get the raise, there’s nothing stopping you from looking elsewhere for a new job!
Check out the Jobcase job board to get an idea of market rates or create a backup plan!
If company has good values towards its employees, they will be paid well.