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I think more frequent salary raises would be good for employee engagement. Rather than an employee "holding their breath"/working for a year and asking for a $5000 raise, why can't the employee feel comfortable asking for a $416 raise every month?

I know there are strong cultural norms surrounding this, but i partly suspect that all of the norms originally evolved in reaction to administrative and technological realities of processing employee pay raises in resource-strapped HR departments. Are there known barriers: HR technology, Legal, Accounting, Executive mindsets (business training?) that interfere with more frequent, low quantity salary increases?

closed as too broad by David K, gnat, scaaahu, IDrinkandIKnowThings, mcknz Oct 6 '15 at 22:34

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    There is a lot of overhead to raises. Typically they will budget for how much they can afford / want to allocate to raises. Then they have to decide how to split is up among departments and individuals. – paparazzo Oct 2 '15 at 17:34
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    Are you saying to make raises a monthly thing based on monthly performance? Because that's a bonus. Only issue is that more than your willingness to work and be productive can affect your perceived monthly worth. A year has a bigger data pool from which to judge from and I would imagine more people benefit from the overall perception that is used to gauge their compensation. – zfrisch Oct 2 '15 at 18:23
  • @Frisbee; Thanks! Can you comment more on what is included in the "overhead" and the source of the conventional practice of allocating a set amount per year and splitting that up....is this something driven by the finance department to make their processes easier? – GoldenPandas Oct 2 '15 at 19:09
  • Easier? You have a budget for raises, a budget for capital projects ... It is how you run a business. If you spend more than revenue you end up going broke. – paparazzo Oct 2 '15 at 19:44
  • Umm, a $5000 raise at the end of the year is not the same as getting a $416 raise every month. $416 raise every month would be $416+$416x2+$416x3+$416x4+$416x5, etc. You see where I am going here. – EkoostikMartin Oct 2 '15 at 19:55
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Are there known barriers: HR technology, Legal, Accounting, Executive mindsets (business training?) that interfere with more frequent, low quantity salary increases?

Companies budget annually. They occasionally revise them quarterly, but seldom monthly. This makes is harder to give unplanned raises each month.

It takes a lot of work to go through the evaluation process that leads to raises. A lot of discussions, a lot of approvals, a lot of paperwork. No manager I've ever worked with (and certainly not me) wants to go through all of that more than once per hear. Most hate it annually.

Next time your annual raise comes up, you should propose that you don't get your full raise all at once, but instead get the same amount parceled out over a 12-month period. Be a pioneer and see how it works out. I can't see how this could be a good thing for you, but perhaps your company will.

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i partly suspect that all of the norms originally evolved in reaction to administrative and technological realities of processing employee pay raises in resource-strapped HR departments.

The first contracts were contracts for a specific work, commissions. "You make a chair for me and I pay you for the finished chair." There was no concept of raises. You had to finish the work in order to get paid. From there the service contracts started - "I need so many chairs per week, that it's easier for both of us to pay you for a whole week instead of per chair." This deal had benefits for both, if both were honest (wo)men. The very moment demand for chairs becomes stable for both parties, it's beneficial to extend the service contract duration.

So, back to the topic, a raise is merely the re-negotiation of a contract. In theory, our carpenter could have negotiated a new price for every chair - but the commissioner, too. But both are not lawyers - they don't make money negotiating, they make money working. If they negotiate a day about the price for a chair, there is no chair made for a day. The benefits of a stable price outweigh the advantages - reliable income and reliable supply are the top concerns for both parties in any business, after all, reliable supply again means reliable income for the commissioner.

If you compare employment culture in different countries, you will see that your concept is reality in other countries. India f.e. has a high percentage of work as commissions, the demand is much less stable - so you also have a high fluctuation of workers, which is not much different from a high fluctuation of wages. Employing a new human is for sure not less administrative or technical work than changing his salary.

Therefore I believe the premise that technology did shape the culture is not tenable. The culture did shape the technology - the concept of steady re-negotiations is completely detrimental to the concept of steady employment, so there was no real need to develop specialized technology or processes for it.

EDIT:

"We just do it annually." or "It takes so long to get pay raises approved" are variations of "We are not lawyers, we don't make money negotiating". It takes long to get things approved because the people in the chain prefer to do things that they feel is their job (even if approving raises is their job). Remember, that HR and managers are already overhead. The commissioner and the carpenter don't need a HR department or manager to create and sell chairs. Note that technology can't do magic - a human still has to tell the software who gets a raise, starting when and how much, if you talk about performance-based raises. And, you usually keep the overhead as low as possible, so the current HR staff is exactly as many people as you must have for the work you already have. You are much more likely to have a second carpenter than a second accountant.

If you start with

"I did a great job this month, I want more money."

the first conceptional counter-argument would be

"Can we lower your salary when your job performance decreases next month in case your wife divorces you?"

and then the employee has two choices:

If he says yes, he basically switched his service contract back into a contract of commissions. He gets paid by what he delivers.

If he says no, you see that it is just a re-negotiation of the whole contract. The employee is a hypocrite (not meant offensive), who wants the benefits of the steady employment with the benefits of commissioned work - the carpenter, who wants more money if he delivers more chairs, but doesn't want less money if he delivers less chairs.

The annual raise is popular, because human culture is based upon a year in time-keeping. We measure time in years and seasons if we can - quarters of a year are much more used than thirds, although there is no reason why 4 months is worse than 3 months. A year divided in three chunks feels - wrong. If you do annual raises, you could also do raises every 11 months. There is no technological or administrative barrier that prevents it, it is a cultural one. If a culture would glorify the number 11, it might have 11-month raises though.

The next numbers that looks reasonable for a raise seem to be 9 month or 6 months, right? But your SAP HR application doesn't care, it will do 8 months, too. It's culture, not technology that came up with these numbers.

So, the two cultural barriers are the culture of time-keeping and the concept of steady employment. The more I move from annual raises to shorter terms, the more I turn the contract into a non-beneficial situation for me as employer - not getting the benefits of service contracts and not getting the benefits of commissioned work.

It's not a big technological or administrative barrier - it's a puzzle and the pieces just won't fit together nicely with monthly raises.

  • Thanks Lars. Interesting premise. Part of the use-case in my mind is when high performing employees have to wait a year to see hard evidence that their employer values that extra contribution. The employee has a lot of time to look for new jobs and second-guess the value of their efforts. The manager might say "we just do it annually", or "it takes so long to get pay raises approved". Is this just manager garbage? or process inefficiency? Ultimately, it costs a lot to lose a good employee and the ultimate end-of-year raise would be the same, just distributed more in-sync with actual efforts. – GoldenPandas Oct 2 '15 at 19:08
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    @GoldenPandas It is not unheard of, particularly in tech companies, to give mid-year raises to high performers. It's just not the norm. – Jim Clay Oct 2 '15 at 19:13
  • @GoldenPandas I added another section dealing with this. Also note, that replacing employees is not as troublesome for a company as a lot of employees think. I've seen plenty of "irreplaceable" people being replaced. The average employee does not generate revenue that is assignable. – John Hammond Oct 2 '15 at 20:28
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The administrative realities of dealing with salary haven't changed appreciably in a long time. Dealing with monthly raises would be a huge amount of human effort.

In general, salary increases are tied to performance evaluations. That generally makes sense-- companies want to give larger raises to better performers, average raises to average performers, etc. Annual performance evaluations are generally a really big deal because you have to ensure that different managers are giving equivalent evaluations so that the teams of easy graders don't get all the raises but that you can also give solid raises to many people on really good teams. That requires quite a bit of interaction between managers and their teams, management with peers, managers with HR, etc. No technical enhancement is going to make that process substantially easier, the complexity is all around human interaction. Plus then HR generally wants to do checks to make sure that people aren't being discriminated against-- if women in role X are getting systemically less than men in role X with equivalent evaluations and tenure, that's something that probably needs to be addressed.

If you wanted to regularly do monthly raises, you'd need monthly performance evaluations for every employee and you'd need to replicate the various balancing tests every month. If you figure that a manager has 10 direct reports and a reasonable performance evaluation takes at least 2 hours (an hour to prepare the evaluation and an hour to go over it with the employee), you're looking at 20 hours of work every month or 12.5% of the manager's time just on performance evaluations. And that's likely an underestimate-- good managers are going to spend more time evaluating an employee. Add in the time required to normalize results across the company, figure out the budget for raises, figure out market rates for various roles and how those have changed, negotiation to determine whether a manager is an easy grader or just has a really good team, etc. and you could easily double that so every manager would spend 1 in 4 work hours just on performance evaluations.

Then there is the issue that evaluating performance every month is tricky. Evaluating people annually gives both managers and employees time to average out highs and lows. Monthly evaluations are going to be much more variable so you're going to have a lot more people that are upset about a bad evaluation. Generally, people are going to be a lot more upset about, say, 2 poor evaluations than they are going to be happy about 10 really good evaluations. A single annual good-but-not-great average would generally lead to much less strife.

Of course, you could do annual evaluations and monthly raises. But that would mean that instead of getting a $1200 annual raise after your annual evaluation, you'd get a $15 or $16 monthly raise for the next 12 months (which works out to $1170/ $1248 over the course of the year-- you can't just divide the annual raise by 12 to get a monthly raise otherwise your salary in month 12 would be $1200/month higher not $1200/year higher). That would give people steady increases but the increases themselves would be pretty small-- a $1200 annual raise sounds a lot better than 12 $16 monthly raises.

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If all you're rewarding employees is once a month or worse, once a year, there are bigger problems.

Most managers should spend just about every moment at work supervising, evaluating, motivating, and rewarding their people, but they're given many more responsibilities or they prefer other tasks and barely have time to do an annual evaluation let alone monthly. There are some that suggest tying employee compensation to things that can be measured more objectively: sales, customer satisfaction, return rates, support calls, on-time delivery, etc. After all, if your actions aren't making the company money, how can they pay you more?

Your suggestion could be addressed with more frequent bonuses just like other commissioned employees. The more a reward is delayed from the behavior the less effective it can be. Even if HR couldn't keep up with monthly payments, at least you would know you earned the reward.

If the practice were more common, the payroll software apps could be built to handle it with less HR staffing efforts.

It's just too easy to keep up our lame annual reviews and subjective bonus systems that probably demotivate employees as much as anything else. According to Aubrey Daniels in the book Oops! you could double the efficiency of annual reviews if you did them every two years. Yes, they're that worthless.

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Another point of human psychology to consider is that people prefer to get a raise that is actually meaningful in terms of a noticeable difference in their paycheck. So suppose the raise is 3600 a year which works out to 300 a month. Now you see a lower amount after taxes. So that works out to maybe 150 that you can actually spend. If you got the equivalent amount one month at a time, you would get a little more than an extra 10 a month every month, Works out the same but not so encouraging is it? And much easier to fritter away without noticing. If you are paid biweekly like most people it is roughly 7-8 a paycheck before taxes which equates to about 4-5 afterwards. This is not motivating to any person I know.

  • And BTW 5000 is huge annual increase for most people,. The median salary in the whole US is around $52,000 a year and most places rarely give out more than a 2-3% annual increase. Even if you make $100K , that is a five percent raise which is only given to exceptional employees. – HLGEM Oct 5 '15 at 18:05

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