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How 3% Raises Hurt Companies

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Eight in ten participants in 24 Seven’s most recent study of the job market reported receiving a raise in the last 12 months and that the average increase was 6.8%. Looking ahead, respondents expect 2020 raises to be slightly lower at around 5.7%. Both averages are well above 2019 & 2020 market wage growth predictions of around 3% from various sources (including SHRM).A three percent annual increase in compensation is just barely ahead of the rate of inflation. Our findings this year show that the higher the increase the higher the likelihood of positive attitudes and behaviors of employees in the workplace.

Higher Raises, Happier Workers

Employees who received a raise above 3% are more apt to identify as engaged at work, and personally connected to meaning, purpose and passion. They feel job secure and valued by their company, are loyal to their employer, and are more likely to believe their employer is loyal to them.

Three Percent Means “Where’s the Exit”

This is quite a contrast to employees who fall at or below the 3% raise threshold. Low or no raise employees are more prone to feeling disconnected from their employer, and to believe that their employer cares little about the employee experience. They are also significantly more likely to be searching to move jobs in the next 12 months.And who could blame them as our data shows that job jumpers enjoyed an even higher average increase of 10.1%. In fact, one third of new position holders saw increases of 15% or more.

Rolling the Dice on Engagement, Productivity, Retention

As budget increases get smaller, talent headaches get bigger – companies can expect a hit to employee engagement, productivity, and retention. Department managers struggling with tight compensation budgets would be wise to consider how to best distribute dollars earmarked for increases.Reward top performers as generously above the 3% watermark as possible so that thoughts of seeking more lucrative opportunities are put off until the next review cycle. Remember, hiring a new employee to take the place of the one who may leave will probably cost you more than raising compensation of the proven employee at hand.For a copy of 24 Seven’s 2020 Job Market Report, register here for the download.