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I am a recent college grad in Computer Science. I have been at my current company for a couple of years. Each year I receive a raise about consistent with inflation (~3%).

Although there are promotions (Software Engineer I to Software Engineer II) at my company I've heard the raises are minimal (in the 2-3% range, but that is on top of inflation raise, so 4-6% depending on how you look at it).

My understanding is a raise consistent with inflation is basically no raise at all. If I am mainly going to receive raises about what inflation is over 10-20 years won't a new hire with a comparable offer be getting paid the same amount I will? Do I need to do something different to get an "effective" raise?

  • Are you sure promotions come with the same salary % increase as getting a raise but staying at the same level? What would be the point in getting promoted? Doing more work for the same pay? – user8365 Nov 17 '14 at 15:18
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    If this is your first software engineering job, and you have been there more than 2 years getting ~3% raises, it's a pretty safe bet you're earning considerably less than market rate. – James Adam Nov 17 '14 at 16:14
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    What does it matter to you whether this is technically a raise or not? What are you going to do with the answer? This question seems to be moot. (Probably, you should rather ask: What should I do in this situation? How much am I worth?) – usr Nov 17 '14 at 18:42
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    Hi Ronnie, I made a slight edit to make this a bit more on topic here as I believe you have a great question. Hopefully others vote to reopen! Let me know if this changed your intent too much, feel free to edit to clarify if so. – enderland Nov 18 '14 at 2:03
  • Do note that if your starting salary was $100k and inflation each year is 3% and you're getting a 3% raise each year you're still getting a raise if that 3% raise is based on your current salary and not your original base salary. If the raise was just to match inflation the raise would be fixed each year. – The Muffin Man Aug 5 '16 at 17:37
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My understanding is a raise consistent with inflation is basically no raise at all

It depends. Inflation is tricky. Using this chart inflation has been below 3% for the past 10 years on average, so 3% is still an actual raise. Note that people will debate "is inflation calculated right?" for a long time.

If I am mainly going to receive raises about what inflation is over 10-20 years won't a new hire with a comparable offer be getting paid the same amount I will?

It might be worse than this.

Frequently new hires make more because a company has to pay market rate for new talent but generally can get away with underpaying current employees.

For example, you might make $50k/year and be happy. But new hires might be frequently receiving $60k/year across industry and as a result your company has no choice but to either:

  1. Pay $60k/year to new hires
  2. Not hire quality employees

In either situation companies generally are going to be slow to move your salary to market rates (if they even do).

Conversely, if you are making way above market rate you might not get a raise at all and new employees get significantly higher/better raises (this varies by company).

Do I need to do something different to get an "effective" raise?

You can do a few things:

  1. Change employers and get a higher paying job.
  2. Take new responsibilities in your current company and negotiate raises/promotions with them

Ultimately you are responsible for ensuring you are paid market rates. Your company might care but will care far less than you do.

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    The longer you stay at a company the worse this gets. In every company I have ever worked for, new hires with much less experience end up making far more than people who have been there long term. This is why it is critical to get as much as you can when you change jobs becasue 2-3% is the norm for raises in most places. If money is critical to you, I would not stay more than 2-3 years anywhere. – HLGEM Nov 17 '14 at 15:58
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    I can't speak for other countries but this how things generally work in the US. – HLGEM Nov 17 '14 at 18:28
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    3. offer 55k to quality, experienced employees of other companies in the same industry, who are currently sitting on 50k and cheaper to hire than raw recruits. Salary inversion isn't really sustainable unless (for whatever combination of reasons) labour is immobile. Eventually some employer is sufficiently motivated to "give away the game" by admitting to experienced employees (initially the experienced employees of someone else) what they're really worth, and start headhunting. – Steve Jessop Nov 17 '14 at 18:50
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    @pi31415: At the end of the day you are personally responsible for your paycheck. HR doesn't just constantly go through people's files to see who needs a raise or constantly check to see if they are underpaying someone. That's the individual's responsibility. – NotMe Nov 17 '14 at 22:43
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    @ChrisLively if the person is being paid below the legal minimum wage then that is HR's problem (as well as the employee) as they have just exposed the company to a potential lawsuit on top of breaking the law. – HorusKol Nov 18 '14 at 22:40
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This depends on the size of the company and how they judge raises and promotions. Often times larger corporations have a standard cost of living wage adjustment (inflation based, roughly), and then some leeway to give a couple extra % to one or two employees per group. Often you have to have performed or accomplished something larger than anyone else in order for you to warrant that extra bit.

For Software Engineer I to II, often there are prerequisites for this as well, such as an average of 3-4 years experience between promotional levels (with some rare exceptions), and a larger raise possible for that year, maybe 5%.

It is also very possible in your example that you could work for the employer for 20 years and fall way behind market rate with these types of raises. Companies have no obligation to bump you up to a market rate. It depends on the company and culture how this occurs, but often it ends with people staying until they decide to find a better paying position.

Switching jobs is a very good way to increase pay dramatically, but you should be prepared to also have something to offer to achieve that.

Some possible options:

  • You learn some great experience in the current job over a couple years but only get token raises. If another company wants you and needs that experience, it can result in a salary boost immediately.

  • You can continue in the current role indefinitely, switch to a similar level role elsewhere and simply make more because market rate has exceeded your raises.

  • You aggressively interview immediately until you find a company willing to pay more for your current level, and switch for the $$. This only works once usually.

I would never discount a role as long as you had something left to learn from it. Grow as much as you can in it, and when it has nothing left to offer and you aren't getting the raises you expect, be prepared to look for new challenges and money elsewhere, places willing to pay a market rate. If you keep at this over your medium term career I guarantee you'll be making more money than now, outpacing inflation.

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    Changing jobs too often to improve your salary (not necessarily in terms of job-hopping) can be bad, though. Soon you will be too expensive to hire vs. hiring a younger person. Of course you will have (hopefully) accumulated a nice little nest of money, so that you can afford a pay-cut to get a different job as you get older and are no longer employable in your current field. – Juha Untinen Nov 18 '14 at 8:12
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    The problems of making too much money are hard. :-) – Miro Nov 18 '14 at 16:14
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It depends how you look at it. In absolute terms, it was a raise. Relative to inflation, the raise amounted to little more than an adjustment for inflation - If there is any inflationary pressure on the US economy, that pressure is certainly not coming from your employer :)

In response to the OP's edit, I'd say that the OP has two options if he wants significantly more money: 1. get promoted into management, 2. change jobs and work for an outfit whose pay scales are less parsimonious.

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    The "is this really a raise?" part of the question is an opinion poll. The question has been edited to be a better fit for Stack Exchange; please take a look. – Monica Cellio Nov 19 '14 at 3:29
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My understanding is a raise consistent with inflation is basically no raise at all.

I understand what you are saying, but I disagree. Having gone through a few years with 0% raises in the past, I believe that is what "no raise at all" really means. For those years, we would have been very happy to keep up with inflation.

Contrast "Sorry, you get no raise at all this year" with "Here's a 3% raise" with "Sorry, I am cutting your pay this year". To me they are different.

If I am mainly going to receive raises about what inflation is over 10-20 years won't a new hire with a comparable offer be getting paid the same amount I will?

Perhaps. But the market rate for new hires doesn't really track to inflation. Other factors (primarily the availability of people to fill these jobs, and the alternatives they have at their disposal) have a bigger impact on new hire salaries than the previous year's inflation rate.

Consequently, new hires could command a salary higher than the inflation rate would imply, or less.

But why do you care what new hires make anyway? You won't be a new hire, and after 10-20 years in the business, what they are making will not impact what you can make.

Do I need to do something different to get an "effective" raise?

If you want to get more than you have been receiving, then clearly you need to do something different.

That might mean working harder, it might mean working longer, it might mean taking on more responsibility - or it might mean leaving for a different company.

Many years ago, when inflation was in double-digits, I felt that high-single-digit raises weren't getting me where I wanted to be. After discussing things with my manager, I made a difficult decision and decided I needed to leave.

In that instance, I was able to find a new job in a new company at a significant raise.

But over the years, I've also been able to get promotions and/or significant raises without having to leave.

  • "Having gone through a few years with 0% raises in the past, I believe that is what "no raise at all" really means. For those years, we would have been very happy to keep up with inflation." Simply not true; if you got a 0% raise and inflation was > 0%, you effectively got a pay cut, not kept even. A raise which matches inflation is in fact just keeping you at the same level. – Andy Nov 19 '14 at 1:49
  • And if that's what I was told I'd ask if there would be cost of living increase. – Andy Nov 19 '14 at 13:36
  • I believe you are both talking semantics. I realize that 3% is a raise. The point I am trying to make is that in my mind if I am only getting raises for inflation in 10+ years a new employee could make the exact same amount I do. I don't care what others make, but I do care if I am getting underpaid. I am curious what I can do(aside from leaving the company) to get better raises. – Ronnie W Nov 19 '14 at 14:46
  • @RonnieW., pay is never fair, someonee less aqualifed than you will often make more money. That is the way of the world. To get more money yourself is s differnt question. You get it by becomeing more valuable to your current employer, by making the case to them that you are more valuable and deserve a raise, by getting promoted or by changing jobs. If you aren't happy with your raise, then you need to up your game and become more valuable or go elsewhere. – HLGEM Nov 19 '14 at 19:26
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To address your specific situation: new graduates in software engineering typically experience a rapid increase in market value. In my area, I'd estimate it at about 40-50% in the first 2 or 3 years, with growth decelerating thereafter. However, the local starting graduate salaries have probably decreased with respect to inflation over the last 15 years.

While your area may be different in some respects, you can see that it is not necessarily the case that in a few years a new graduate will be hired at the same rate as you're on - graduate salaries may be rising more slowly than inflation. One thing which is practically guaranteed though is that anyone who has equivalent experience to yourself will be hired in at a higher salary - unless your company is only hiring people considered unhirable elsewhere.

If you want to be paid market value, it's likely you'll eventually have to go on the market. That doesn't necessarily mean you're wasting your time where you are, as early in your career it's far more important to gain marketable skills than to get a slightly higher salary, but it does mean you shouldn't be making any assumptions about staying there in the long term.

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