What is a Good Pay Raise?

By Chris Kolmar - Nov. 3, 2020

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Everyone loves a raise – seeing that number on your paycheck get bigger now and then gives us a sense of tangible career progression. But employees also like to know if they’re being compensated fairly, and part of that is knowing what a typical pay increase is in your region, industry, position, and company.

Armed with this salary data, you’ll have a better idea of what sort of pay raise to expect or ask for.

And with that knowledge, you’ll also be in a better position for achieving an above-average raise.

What is an Average Annual Raise?

The coronavirus pandemic has caused average raises to decrease slightly for the first time since the Great Recession of 2008-09. And there’s still a good amount of uncertainty on how the economy will change and recover in the coming months and years.

In years past, the typical pay raise, across industries, regions, and positions, has been roughly 3%. That doesn’t mean you should necessarily be feeling glum if your raise is below that or jumping for joy if your raise is above that.

It’s important to consider several other factors when determining how your raise measures up. Consider the following when figuring out whether your pay raise is fair:

  • The economy. If all economists were laid end to end, they would still not reach a conclusion” – George Bernard Shaw. Nobody really knows what sort of voodoo witchcraft economists get up to, but macro-level events, like a recession or a global pandemic, obviously harm the economy writ large.

    How much money employers have in the piggy bank and what level of growth they anticipate are factors employers consider when budgeting for pay raises. In other words, if you know that your company is struggling, you can damp down your pay raise expectations accordingly.

  • The industry. If the industry you work in is up-and-coming with loads of growth potential, you can generally expect bigger pay raises. These new industries need to attract and retain talented employees quickly to fuel their growth. So if you’re working in IT for a company that provides solar energy, that’s a winning combo for a larger-than-average pay raise.

    On the flip-side, if you’re hoping for a 10% raise while working at a video rental store, you can wake up from that dream you were having.

  • The position. Certain occupations have a shortage of qualified workers. By itself, that doesn’t necessarily mean those jobs are best positioned for pay raises. Jobs that are in high demand and have a low supply of qualified/willing workers are the real beneficiaries.

  • The region. Just as some industries are experiencing growth while some are stagnating or shrinking, geographical regions (states, metro areas, etc.) go through the same thing. It’s not just about population growth/decline. Just like you’d expect a bigger raise from a growing company with ever-increasing resources, if you’re living in a city that has a budget surplus and allocates public funds appropriately, you can expect local firms to perform better.

    Job type you want
    Full Time
    Part Time
    Internship
    Temporary

    When local firms are doing better, it’s easier for them to spend more on their talented employees (i.e., you!)

Pay Raises in the Pandemic

This is a tricky time to offer predictions for pay raises, but looking at the data can help a bit. While the US GDP fell by 32.9% (yikes) in Q2 of 2020, wages are still on the rise (phew).

Let’s start with an optimistic view of things. In 2020, thus far, wages have increased by 2.5% since last year. In comparison, at the same time last year, wages had only increased by 2% since the previous year. Given world events, how can this be explained? Well, that brings us the pessimistic view of things.

In a recession, organizations don’t like to do across-the-board pay-cuts or keep wages stagnant – while it may seem like that would be the equitable course of action, it also causes top talent to jump ship.

What do companies do, then? Well, one way to reduce salary spending is to reduce the number of people receiving salaries. That is, they lay people off. The logic? A company would rather have a leaner, more-talented workforce kept motivated by pay raises than a larger, more disgruntled workforce who’ve had their pay cut.

On the other hand, the coronavirus recession is weird, as recessions go. Companies are essentially waiting out a clock with no definitive idea of how much time is left. Every organization is handling it in their own way, so across-the-board pay cuts are still in play for some who think it’s more efficient to hold on to their entire workforce and power through a few months of lower profits.

And then some businesses have positively thrived throughout the pandemic and have oodles of cash on hand to budget for pay raises. It’s important to have a realistic view of the company you work for and how they’re doing in the weird world of 2020. If things are looking and feeling grim at a macro-level, then you can’t really hold out hope for big pay raise.

The Data on Pay Raises

With that big grain of salt out of the way, let’s take a look at the available data on pay raises. We’ll be using data from the WorldatWork 2020-21 Salary Budget Survey, reported by the Society for Human Resource Management (SHRM).

In 2019, the budgeted mean pay raise across all employee types was 3.2%, and the median was 3%. So far in 2020, the budgeted mean pay raise is 2.9% and the median is 3%. Those numbers are the same for the projected budgets for 2021.

The median budgeted pay raise is in line with the years past at 3%. However, the mean budgeted pay raise falling from 3.2% to 2.9% tells an important story. When looking at a median value, outliers are scrubbed, because a median is just the middle value of a set of data. The mean is lower than the median, indicating that there are more outliers on the lower side (0-2.9% increase) than on the higher side (3.1%+).

In other words, more organizations are offering below-average pay increases than above-average pay raises this year, and they project that trend to continue next year. To give you a better idea, 10 times more organizations are indicating a zero salary increase budget for 2020 than in 2019, which clearly skews the mean pay raise to the lower end.

Still, 84% of companies are expecting to pay some form of salary increases in 2020. And more than 70% of companies are still giving raises in the 3-4% range. Take that with a grain of salt, as the effects of the pandemic may lag in some areas.

Pay equity, or making sure that women and minority employees are compensated as much as their white male counterparts, is something that 65% of surveyed organizations expect to make in 2020.

Merit-based pay raises are expected to be at 2.6%, which is a drop from the 2.9% level of 2019. Whereas high performers in 2019 could expect a 4% raise, in 2020 that number has dropped to 3.6%. It’s a similar story with middle and lower performers, although the drop is only about 0.2% rather than 0.4%. Tough luck for high-performers, who can expect the steepest drop in merit-based pay raises this year.

Across employee categories (executives, management, exempt, nonexempt salaried, nonexempt hourly), the budgeted 2020 salary increases are between 0.4-0.5% lower than the salary increases granted in 2019. But that’s only when you include companies that have indicated they will not be raising salaries at all. When you exclude such companies, the drop is only between 0.1-0.2% from 2019. So if you know your company is still offering pay raises, they shouldn’t look radically different than last year.

As previously discussed, what industry you work in has a big impact on wage growth. The following data are from PayScale.com.

Those in the arts, entertainment, and recreation industry can expect the biggest raises in 2020, at 3.3%, while those working in energy and utilities can expect the smallest raises in 2020, at 1.9%.

Similarly, different job categories have experienced different rates of wage growth. Jobs in transportation have seen the biggest spike by a huge margin, at 4.5%, while jobs in HR and art/design have seen the smallest increase at 2%.

Lastly, what metro area you live in can have a big impact on your wage growth. For instance, the Seattle Metro Area has seen year-over-year wage growth of 3.6%, while the Houston Metro Area has only increased by 1.1%.

Additionally, you can take a look at more focused regional employer surveys or find out if your employer publishes pay ranges for company jobs. The more specific information you can get, the better position you’ll be in when determining the value of a pay raise.

Types of Pay Raises

When we think of pay raises, we usually think of it as a reward for superior work or lasting loyalty. But there are a few different types of pay raises.

  1. Cost of Living Adjustments (COLA). Every year, things cost a bit more. This is known as inflation. We’ve all heard grandparents blather on about how much they could afford with a nickel back in their day, and that’s what we’re talking about here. Two terms are important to understand here: real wages and nominal wages.

    • Nominal wage increase. The amount your pay has increased, using a dollar amount. If you got paid $50,000 last year, and this year you’re getting paid $55,000, your nominal wage increase was $5,000.

    • Real wage increase. The amount your pay has increased, using buying power instead of dollar value. Real wage increase takes inflation into account. So in that example above, you may have gotten a 10% nominal wage increase, but if the inflation rate is 2%, your real wage increase was only 8%.

    Basically, cost of living adjustments just make sure that your buying power stays level from year to year. If the inflation rate from 2019-20 was 2%, getting a 2% raise just means that you’re essentially earning the same level of buying power this year as you were last year. It’s a nominal raise, but in real terms, it’s just about keeping your pay on par with the cost of living.

  2. Performance-based pay raise. This is the raise that most people think of; you do better at work, and your employer rewards you with a bump in pay. The WorldatWork Salary Budget Survey 2019-2020 indicates that organizations have budgeted a 3.6% pay increase for high performers, 2.5% for middle performers, and 0.6% for low performers, so there’s a significant difference in merit-based pay increases depending on your performance level.

    Additionally, the report found that 76% of companies were planning to award annual performance bonuses (not salary raises) in 2020, averaging 11% of exempt employees’ total salaries and around 6% for non-exempt employees.

  3. Promotions. Everyone knows that a big reason that people aim for promotions is that they usually come with more money. While a performance-based pay raise incentivizes you to and rewards you for superior work at your current position, a promotion also comes with new or extra responsibilities. 54% of organizations budget separately for promotional increases. As of 2019, the average promotional increase was 9.3%.

  4. Equity raise. Used to make sure employees are paid the same for equal work. We touched on this type of raise in the context of women and minorities, but equity raises are also employed when in the following scenarios.

    • A long-term employee is receiving pay that is low relative to a new hire

    • Salaries between a supervisor and his or her employees have compressed

    • A casual employee enters into a full-time position

Switching Jobs: The Other Way to Get a Raise

Changing your job is one of the fastest ways to get a substantial increase in pay. The Workforce Vitality Report, produced by Automatic Data Processing (ADP) shows that job “switchers” earn an average raise of 5.6% year-over-year, while job “holders” see wage growth of just 4.1%. The report, last updated in June 2020, shows that the gap between the two groups (switchers and holders) has grown by 1.3% since last year.

The report also makes it clear that all regions are not equal when it comes to job-switching gains. For example, workers in the West saw the biggest gains for switching jobs, with an average salary increase of 6.9%, while workers in the South saw only a 4.5% gain.

  • West: 6.9% wage growth for switchers – 4.6% for holders

  • Northeast: 6.3% wage growth for switchers – 4.2% for holders

  • South: 4.9% wage growth for switchers – 3.9% for holders

  • Midwest: 5.4% wage growth for switchers – 3.7% for holders

Of course, what industry you work in also has an impact on how much more you can hope to make by switching jobs. People who switched jobs in Information saw the biggest pay gains for switching jobs, at 9.5%, while those working in Leisure & Hospitality actually saw a loss of 1.1% when switching jobs.

  • Construction: 6.3% wage growth for switchers – 4.8% for holders

  • Manufacturing: 5.5% wage growth for switchers – 4.3% for holders

  • Resources & Mining: 3.2% wage growth for switchers – 0.2% for holders

  • Finance: 6% wage growth for switchers – 4.4% for holders

  • Professional Services: 8.4% wage growth for switchers – 3.1% for holders

  • Information: 9.5% wage growth for switchers – 4.1% for holders

  • Education & Healthcare: 3.4% wage growth for switchers – 4% for holders

  • Leisure & Hospitality: -1.1% wage growth for switchers – 6.7% for holders

  • Trade & Transportation: 4.3% wage growth for switchers – 3.6% for holders

As you can see, switching jobs isn’t a magic bullet for boosting your pay, but in most industries, switching jobs will increase your year-over-year salary more than waiting for a raise at your current job.

How to Help Your Chances at a Big Raise

All right, so that’s the scoop on what pay raises in America look like, by the data. But how do you actually get one? Here are a few tips to position yourself for an above-average raise.

  • Determine how you can be more valuable. While you can form an educated guess on what your employer values most, the quickest way to figure this out is to just, uh, ask. Talk to a supervisor or someone in management and determine what sort of work/training/skills/etc. they value the most highly. Then, start doing whatever they said!

    Always keep the bottom line in mind – how are you going to help make the company more money? Because if you’re legitimately adding value to the company, your pay raise is essentially offset by the extra dollars that you’re bringing in.

  • Don’t be a stranger. Some folks just fly under the radar, and they’re more than happy with such an arrangement. The trouble comes when you’re flying under the radar when it comes time to determine what sort of raise each employee deserves.

    The remedy? Ensure regular contact with your supervisor and make sure they know exactly what you do. With all these progress updates, you’ll be able to provide a mountain of documented evidence of all you do for the company.

  • Boost your market value. Learn new skills, acquire new certifications, take courses, or attend conferences in your industry. The more stuff you can do, the more valuable you are. And when you start collecting accolades that could make switching jobs very easy, your company should compensate you accordingly.

  • Be ready to say goodbye. Ultimately, a raise may just not be in the cards for you. Maybe your company (or the industry) is suffering and there’s just no room in the budget to give you the raise you deserve. Don’t take it personally. But consult salary calculators to see what sort of pay you should expect and keep an eye on the job market. If a raise isn’t in the offing, it may be time to be off.

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Chris Kolmar

Author

Chris Kolmar

Chris Kolmar is a co-founder of Zippia and the editor-in-chief of the Zippia career advice blog. He has hired over 50 people in his career, been hired five times, and wants to help you land your next job. His research has been featured on the New York Times, Thrillist, VOX, The Atlantic, and a host of local news. More recently, he's been quoted on USA Today, BusinessInsider, and CNBC.

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