Everyone’s inner-optimist is a loud-mouth.
â€œYes, you deserve a gigantic increase in pay.â€
It’s that time of year when you hear about your bonus and raise.
â€œYou’re obviously going to get it. So go ahead. Start fantasizing about it!â€
That’s just what we do. We see dollar signs and start day-dreaming about what we can do with that extra amount of money.
â€œWhich savings account should I place it in?”
“Where can I take my family for a much-needed and overdue vacation?â€
The mysterious calculation of compensation
One thing people don’t always understand is how bonuses and raises are calculated. In some industries, all the steps and pay equivalents are highly defined and may even be the subject of regulation. Some of us have bonuses and/or raises written into our employment contracts, so we know exactly what we are eligible to receive every year. Some companies offer a less traditional bonus or raise structure that includes a grant of stock or an offer to fund qualified retirement plans.
However, some industries don’t operate that way. Some of us work in industries or businesses that offer no guarantee as to what to expect from bonus-and-raise season â€“ and if there is a bonus or a raise at all, it depends purely upon profit and cash flow.
In some cases, small business owners (if they are savvy enough to have a handle on profit) actually can’t afford to give employees a raise. If the margins are too tight or the operation is mismanaged, employees may actually have to worry about continued employment.
What is the average bump-up?
So if your compensation will increase this month or next, what is an appropriate amount to expect and how will you know if you’ve been low-balled or you are highly valued?
According to a Towers Watson survey of U.S. companies, the national average pay raise in 2015 is expected to be about 3 percent.
The Bureau of Labor Statistics reported that the national, annual mean wage for those employed is $47,230. (Whether this is a high-enough number or not is a whole different debate!)
How far does the average bump-up go?
So what does a 3 percent raise (which amounts to $1,416.90 pre-tax annually for the mean wage) actually mean for the average American?
According to the Bureau of Labor Statistics again, the current rate of inflation is 0 percent (lower than last year’s average 1.62 percent), which means that a 3 percent raise will go further this year than last year’s 2.9 percent average raise* — which means it will actually give us padding for inevitable rising inflation. Cool!
Comparing the average to your budget needs
When you look at your personal budget, you may see your raise as an incentive to stay put or a reason to look elsewhere. But if, for instance, you know the cash flow within your organization has been positive all year long, yet you don’t feel like you’ve received enough from your bonus or raise, is there something you can do?
Sure, it’s easy to let our inner-optimist shine through, even if we know it may not always be the most logical train of thought. The thing is, a bonus or raise shouldn’t be considered in a vacuum. It represents a number of factors, some of which are completely outside your control. So if your new compensation doesn’t satisfy your budget needs, typically the choices run the gamut from quitting to negotiating for a better raise. You can also adjust your budget considering that your present salary looks like it may go a little further than it did last year.
See also: Negotiate for perks when raises are off the table
What will you do with your bonus or raise?
If you are fortunate to receive a bonus or a raise this year, hopefully your plans include eliminating a credit card balance or making a healthy deposit to your emergency fund or retirement account.
But what’s your bonus or raise situation? When it comes to bonus-and-raise season, have you always been offered additional compensation? What will you do if you aren’t offered enough? What alternative forms of compensation are you open to accept or barter for?