Balancing expectations for bonus-and-raise season

Everyone's inner-optimist is a loud-mouth.

“Yes, you deserve a gigantic increase in pay.”

It's that time of year when you hear about your bonus and raise.

“You're obviously going to get it. So go ahead. Start fantasizing about it!”

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.

“Which savings account should I place it in?”

“Where can I take my family for a much-needed and overdue vacation?”

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 — 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?

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lmoot
lmoot
5 years ago

I typically get a 2.5 – 4% raise. I’m at a new company now and am expecting 2.5% as a 1st year employee. We do get bonus quarterly but they’re usually only a few hunded dollars, which would just go into my checking account. I started the year saving $250/wk, moved up a few months ago to saving $375/wk, went back down to saving $250/wk this month because of higher than typical expenses (and spending more than I should). My ultimate goal is to move up to saving $500/ week AND still have enough cash in my checking to fill… Read more »

Beth
Beth
5 years ago

I like to follow my dad’s advice: let the dust settle. I try not to think about what I’ll do with the extra money until one month after my raise goes through. My dad’s thinking is to first find out how much you’re losing to taxes and cost of living increases. Second, you get to treat yourself to something fun the first month. (Within reason, of course! A new book or article of clothing I might not otherwise have bought.) Month two and onwards the extra cash goes towards savings and donations. (When I had student debt, the extra went… Read more »

Mike in NH
Mike in NH
5 years ago

I’m very fortunate to work for a company that pays for performance. If you rate as exceeding or excelling vs. expectations, you are guaranteed a raise/bonus. As far as amounts I have shifted gears the past 5 years after finding a comfortable level and I no longer look for opportunities to advance up the ladder. That limits my compensation % in some ways, but I’m happy with what I make anyway so a 3% raise and a 5% bonus are nothing to ever complain about. Especially when I know people who haven’t had a raise in years or work in… Read more »

lmoot
lmoot
5 years ago
Reply to  Mike in NH

This is exactly what I experienced. We know ahead of time the different metrics and what we can expect to receive for reaching those metrics. Yet people are always surprised, or jealous, or upset. Once I decided to change careers, and knowing I wasn’t going to stay in my current one, I stopped looking for higher positions. The good thing is that there are different levels in my position and I was hired at the bottome level (though I qualified for the top level and didn’t negotiate…stupid on my part). That means that I have income growth opportunity without having… Read more »

Kyle
Kyle
5 years ago

I’m a little underpaid at the moment, If I got 3% I’d probably jump ship pretty quick.
Since college I’ve worked at 5 small companies all with around 10 employees. I’ve found being straight with your boss about compensation expectations has been probably the smartest thing I’ve done financially. If you have the skills, be frank about where you want to be, and talk about how to get there. I’m actually asked for a meeting with my boss last week to go back through my financial compensation goals with the company.

Ali @ Anything You Want
Ali @ Anything You Want
5 years ago

Ah to get a 3% yearly raise. I work in the public sector and for the last several years we have gotten 1% yearly raises or nothing at all. At least I don’t have to worry about how to budget with more money!

Kayla @ Femme Frugality
Kayla @ Femme Frugality
5 years ago

I have definitely counted my raise and bonus before I had them before – and it didn’t turn out great. Now I know not to count on that money until I see it in my account.

akoilady
akoilady
5 years ago

Our raises are given at the time of our annual performance review. I have a rigid Administrator who does everything by the book. This year, my company, a large, for profit health care company that depends primarily on Medicare reimbursement, had a ceiling of 2% for the raise. For the first time in my over 10 years with the company, I received less than the maximum amount, as my Admin felt I had a “needs improvement” on my review. She gave me a 1.9% raise. Negotiating for a higher salary is not an option in this company. I was angry… Read more »

Amy
Amy
5 years ago

I actually just got my raise on July 1st. I was fortunate enough to get a 10% raise because of my efforts to take on more work this past year. After some calculations I increased my 401k from 20% to 27% which left my paycheck about $5.00 less than it was before my raise. I love the opportunity to be a responsible adult!

Sylvia @Professional Girl on the Go
Sylvia @Professional Girl on the Go
5 years ago

I am a civil servant, so bonuses are not giving and we might get a cost of living raise but its not a lot. I think it is less than a grand. I am thinking about moving into the private sector, because here if you work in the private sector (especially reinsurance) you’re making bank. Like 5 figure bonuses.

Benyamin
Benyamin
5 years ago

I think it can be tough to avoid going out and spending after getting a raise, especially for people relatively new to the work force. It can be exciting!

Frank
Frank
5 years ago
Reply to  Benyamin

You are absolutely right!! If you have this wonderful “problem,” try this. When new to the workforce I would spend all of these unbudgeted bonuses on things that I had wanted but could not justify from usual income. After a few years of doing this, I looked back and tried to remember what I had spent the money on. In a few instances I could remember but mostly I couldn’t. Now I see the money spent on items not remembered as wasted. That helps me with prospective and not doing it again. For what it’s worth, look back on your… Read more »

uri
uri
5 years ago

i get a regularly scheduled pay increase in a known amount every year, because it’s negotiated in advance with management. that’s one of the perks of having a union. more people should do this.

moneystraight
moneystraight
5 years ago

public sectors are relail pain to get a raise. I get somewhere between 2-3%

peter main
peter main
5 years ago

There is still a mindset that if you work in the public sector you are doing it out of a sense of virtue and not for the money – this is often used as an excuse for paying bad pay rates

stellamarina
stellamarina
5 years ago

Oh dear. If there has been 0% inflation and cost of living going up, does that mean that us people on Social Security do not get a raise this coming year?

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