The Fed wants to see wage growth but is the annual raise dead?


Did the “Great Recession” kill the annual raise and replaced it will variable compensation – the annual bonus? Base salaries are often a company’s major fix cost of doing business and can be a drag on corporate profits during recessions. In a perfect world, variable compensation allows companies to align corporate and worker incentives, it rewards high performers and hard workers. It also allows companies to pull back on employee costs during hard times without resorting to layoffs.

In reality, switching from raises to bonuses has mucked up a lot of things. For starters, it’s hard for an employee to make long-term financial plans with such short-term financial commitments from their employer. It’s nerve-wracking to take on a 30-year mortgage if your income is $100,000 this year but might be $80,000 next year.

Managers are caught in the middle, they feel the need to give something to everyone. In some cases, managers believe that the bonus is not related to performance but part of the employee’s salary. Ultimately, less money goes to the top performers and the poor performers are getting more than they deserve. This more humane approach throws a big monkey wrench into the big cost saving idea behind bonuses. Many corporations are having trouble holding on to their best employees.

The Towers Watson survey found that 40 percent of firms said turnover is rising, and 52 percent said they are having difficulty retaining “critical-skill” employees, compared to 41 percent last year. You’d think the solution to the problem of “talent mobility” would be relatively easy to solve — more pay.

Is it just my imagination or has corporate culture become more greedy? When did employees become liabilities instead of assets of the company. The captain of the corporate ship is getting well compensated for sub par performance by his bubbies sitting in boards room. Corporate boards are suppose to protect shareholders but they are allowing  financial engineering (share buybacks) to mask poor performance.

Are you prepared for your annual job review? I would recommend making a list of possible job perks that you may want if  your bonus or wage increase is lower than expected. You may want to read, Money Tip: Ask for Job Perks, to get some ideas on what to ask for.

A personal experience: As an owner of a small business, I have sat on the other side of the desk. I found the whole employee job review process to be very stressful.  The most uncomfortable experience that I had was seeing a grown man cry during his job review. He was not only older than me but had more industry experience. He expected to be fired but I decided before the tears to give him a second chance. In the end, we were both winners. 


3 thoughts on “The Fed wants to see wage growth but is the annual raise dead?

  1. The company I had worked for operated on bonuses and the company my husband currently works for does annual pay raises plus a yearly profit sharing bonus. I prefer my husband’s structure because I believe he has a better shot at keeping up with inflation.

    Liked by 1 person

  2. A very timely article. Last year was the first year my current company froze salaries – as in no cost of living adjustment (COLA) and bonus percentages were less than previous years. Having been with another company – before being laid-off, I was used to frozen salaries and a variable bonus structure, so my surprise was not that it had happened, but rather that it took this current company so long to do just that. Others have been do this for years.

    I find out this years compensation in about 2 weeks.

    I don’t think greed is necessarily the cause for this happening but, rather competitiveness. Because my company is a consulting company, base salaries affect rates and rates affect bottom lines and bottom line affect proposals. Lower costs equals lower bids and lower bids equal, hopefully, more wins.

    We are fortunate in that we do have lots of other perks, like nice quarterly meetings (AKA at Nationals Park), occasional free lunches, free coffee and tea, free parking, etc. The perks help employee loyalty and retention but I sometimes wonder if I wouldn’t rather have the additional salary instead of all the perks.


    • Best of luck with your review. IMHO, over the long term, selling services based on price can to a dangerous strategy. Freezing salaries could eventually encourage the top people to leave.


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