Think about your last raise. Struggling? You’re not alone. Raises are all but dead, I reported recently for CNBC.com.
My editor there, Jennifer Barrett, recently pointed me towards a study with some curious findings: First, company bonus pools are falling short, so bonuses will be a bit disappointing this year. Second, corporations are lamenting their inability to attract and keep top talent. That seems like an easy problem to solve, no? But in reality, the way companies pay their workers has shifted dramatically in the past few years, putting both companies and HR departments into an uncomfortable box. I explain this in much more detail at CNBC.com, but this story also has a big Restless Project component I’d like to discuss here.
Many corporations have latched onto new ways of paying workers that favor bonuses over raises. There’s plenty of reasons for this, and it can be a good or a bad thing, depending on your circumstances. For companies, the benefit of “variable compensation” is pretty obvious. Raises are permanent; bonuses are temporary. Raises are a permanent liability on a balance sheet. Bonuses can be taken away with a tap on a keyboard. And when bad times come, it’s a lot easier to cut bonuses that lay off workers.
But variable compensation can also a nightmare for families trying to make long-term plans. Bonuses have effectively become part of worker salaries, rather than a “surprise” end-of-year luxury. So how can you sign a 30-year mortgage if your income varies dramatically year to year? How can you make a budget? Plan to pay for school tuition?
Workers with highly variable compensation might as well be independent contractors, like Uber drivers, who live in the sharing economy. This is another reason Americans feel so restless, the topic I’ve focused on in The Restless Project.
The death of the raise brings about another social problem, too. I remember hearing in my 20s that it was ok for me to take some risks, because I could expect my paycheck to slowly rise as I moved through the ranks in my profession. So it was ok to buy a home when I was 25, ok to move across the country, ok to go to graduate school, and so on.
This notion that better things lie ahead propels so many risky but rewarding life decisions. If raises are dead, that kind of optimism has gone missing.
There’s a raging discussion on my CNBC.com story, with many workers lamenting that they’ve forgotten what a raise is. A writer identified as “ready_to_retire” offers this insight: “99% of workers get no bonus at all, and no raises either. The solution is to change jobs regularly, getting a better paying job each time. Turnover costs the employer too, but most are too stupid to realize that.”
Changing jobs is the new raise. That’s quite an insight, I think. It’s an option available to many workers, and it’s going to be essential to living in the “new” economy. But worker portability, as economists call it, is a very imperfect proposition. You’re not portable if your kids really like their school, for example. Or you have to care for an elderly relative. Lots to think about here. When was your last raise?
Click over to CNBC to read the story.
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