How tech raises work (and how to get a bigger one)
This isn't a post about negotiation -- there are plenty of people happy to talk about how you should negotiate your salary with your manager. Rather, I'm going to talk about pay raises from the point of view of the manager (because I was one of those) and the salary planner (because I was one of those, too). The more you understand the hows and whys of raises, the more you'll be able to influence your paycheck -- sometimes, without even bringing up the subject!
How do raises work?
Compensation is a notoriously opaque subject in most sectors, and tech is no exception. It's often considered impolite to talk about salary, and indeed, most employers would prefer you didn't -- after all, the more information you have, the better your bargaining position! However, transparency is becoming more of a byword in more progressive companies, as they begin to realize that trust is as much a talent draw as compensation. The day of full transparency is not yet here, though, so let me break down the major variables that influence your raise in mid- to large-sized tech companies:
1. Your job title. Your company's Human Resources department has a salary range assigned to each job title. These ranges almost always overlap, so being of higher rank than the next person doesn't guarantee that you're paid more, but it skews the odds in your favor; generally speaking, the lower in the salary band you are, the higher your raise is likely to be. These salary bands are, in turn, determined by...
1a. The overall job market. HR doesn't magically conjure the salary bands out of thin air. They generally work with upper management to determine where the company wants to stand with respect to the job market in their sector/region/etc., gather annual data on the salaries of employees in that job market, and determine the company's salary bands accordingly. Which leads us to...
1b. Your company's business model. Companies that require higher-level talent in order to make their business model work will generally place their salary bands higher relative to the rest of the market. If your company regularly disrupts the market with innovative products, this is likely the case.
2. Your salary planner's budget. The person in charge of determining your compensation is called your "salary planner", generally the director or vice president in charge of your division. The salary planner is given a budget for raises each year, and as you might imagine, this is a large factor in determining who gets what. Every person in the planner's division may well be underpaid relative to their HR-determined salary bands, but if the planner doesn't have the budget to fix the problem, they're still not going to get the appropriate raises.
3. Your performance. How well you do your job is ideally going to play a role in your raise. The causal link between performance and pay is, however, not as direct as one might assume, given the factors I mention above. Given that there's a limited budget, giving more money to some people means giving less to others. True, you may be a rock star...but are your co-workers really the dregs of humanity? If there's an imbalance of employees that "do not meet expectations" versus ones that "exceed expectations", how does the planner solve the problem without breaking the budget? Different companies and salary planners solve this in different ways: some actively encourage a spirit of competition and assign raises comparatively, while some purposefully limit the performance-based aspect of raises in order to avoid uncomfortable conversations. (Side note: if you're reading this as a salary planner, be as transparent as possible here. I guarantee you that insofar as your employees are typical engineers, they will come up with the worst possible explanation for their raises, something much worse than the actual truth. Sorry -- we're just a cynical bunch. There's a reason why Dilbert is so popular!)
Notice: nowhere in there did I say "inflation"! While inflation may be somewhat correlated with wage growth, insofar as there is a causal effect at all, it's generally that wage growth causes inflation, not the other way around! So if your raise is equal to or less than inflation, don't even bother bringing it up -- look for other knobs to turn. Which is a good segue into...
How to get a better raise
Demonstrate that you understand how raises work. Now that you understand compensation, you'll be able to have a productive conversation with your boss, if necessary, without harping on factors that simply aren't relevant to the conversation.
Figure out where you are in your salary band. If you know where to look and whom to talk to, you can generally determine what your salary band is, and hence your place in it. Glassdoor, salary.com, and Payscale are decent places to gather data, but be aware that HR is likely using much more in-depth, not-publicly-available surveys, so the data may not match up exactly. Your best bet is to have a contact in management and/or HR who can get you the data directly, but depending on the company's policies, this may be more or less difficult to get.
Get a promotion. By moving your salary band to a higher one within your company, you're now at a lower position within your new salary band, which increases your odds of getting a higher raise. (Not to mention the fact that there are often other compensation benefits, including stock options and expanded bonus structures.) This doesn't have to mean a managerial position: most tech companies offer technical tracks, with compensation benefits that mirror those of the managerial track. Of course, that's easier said than done, but don't worry: I'll talk more about getting promotions in another article.
Become a linchpin. It's one thing to do good work; it's another to become irreplaceable (or nearly so). Marketing thought leader Seth Godin wrote an entire book on the idea. Now, a linchpin is not "the irreplaceable expert on an internal system that only they understand". Nor are they necessarily the smartest person in the room (though that doesn't hurt). Rather, linchpins are the ones who can be trusted to get the job done, of which their manager says, "if I put her on the problem, I won't have to worry about it anymore." My father likes to say, "if you want something taken care of, give it to the busiest person in the room" -- that's a linchpin. They're highly valuable, and highly promotable!
Speak up. This is particularly true for women: the glass ceiling is quite real, and until we fix that issue, the unfortunate truth is that if you don't speak up, you will likely be underpaid relative to your peers. Don't be a jerk about it, of course, but the good news is that you don't have to be. No matter your gender, if you're a linchpin and your salary planner knows that you feel underpaid (and you actually are both a linchpin and underpaid!), they'll likely do what they can to fix it -- you're worth too much to risk losing! Also, most salary planners and managers in my experience won't take it personally; they understand that in an at-will job market, it's only fair that if they can lay you off at any time, you can leave at any time, and should be compensated accordingly. The converse is also true: if you're unhappy but quiet about it, your planner may well ignore you in favor of squeakier-but-less-valuable wheels!
Develop good relationships. This one is a bit subtle, but if you've been reading carefully, you'll note that everything I've said so far is contingent upon having good relationships with your co-workers. Good relationships can help you get information on your compensation within your band. Good relationships will help you learn what it takes to get promotions and/or become a linchpin. Good relationships will allow you to speak up without fear of damaging the relationship (or your career). Developing good relationships is worth its own article, but I'll give you two starting points: 1) talk to people, and 2) care about what they have to say.
Move to a company with higher salary bands for your current job. Obviously this is a bit of a "nuclear option", but in the interest of full disclosure, I feel obligated to point it out. If you're in a company where the business model is to "squeeze every quarter until the eagle screams", then moving to one whose model instead requires top talent (with corresponding higher salary bands) will likely result in higher long-term pay. Note: I do not recommend job hopping purely in order to combat "wage compression"! You may get a nice pay bump by changing companies, but unless your new company truly has higher salary bands, then you've just deferred your pain -- by jumping to a higher point in the band, you've merely increased your odds that future raises will be on the lower side of the curve. Moreover, you now have to "start over" with regards to relationships and some of your skills, which will slow you down on your path to promotions and linchpin status.
As always, this article is meant to apply to 85% of people, 85% of the time. What about you? Do you have an experience that resonates with what was said above -- or doesn't? I'd love to hear your story, either in the comments or via e-mail.