{"id":14828,"date":"2025-09-25T19:02:50","date_gmt":"2025-09-25T19:02:50","guid":{"rendered":"https:\/\/jboitnott.com\/?p=14828"},"modified":"2025-09-25T19:02:50","modified_gmt":"2025-09-25T19:02:50","slug":"this-simple-rule-of-thumb-about-annual-raises-will-reduce-employee-turnover","status":"publish","type":"post","link":"https:\/\/jboitnott.com\/zh\/this-simple-rule-of-thumb-about-annual-raises-will-reduce-employee-turnover\/","title":{"rendered":"This Simple Rule-of-Thumb About Annual Raises Will Reduce Employee Turnover"},"content":{"rendered":"

A founder friend of mine recently\u00a0gave an employee a raise<\/a>. They thought they were doing something good \u2014 that this was a significant \u201cgeneration\u201d raise that would lift the spirits of the employee, giving them an increase in pay that would truly make a difference for their standard of living in the long run. As it turns out, my friend was mistaken and the employee was upset because the raise didn\u2019t amount to much after adjusting for inflation.<\/p>\n

Times are tough for businesses everywhere, but giving employees fair raises can actually save you money in the long run. If you follow the right strategies, you can keep your employees happier and your organization running smoothly.<\/p>\n

How to calculate a raise based on inflation<\/h2>\n

Inflation drives up the cost of goods and services and devalues your money. Even if you get a raise, it may not go very far if\u00a0inflation rates<\/a>\u00a0are high. For example, in 2022, inflation rose as high as 8%. If employers keep pay rates the same as they were when inflation was closer to 4%, employees actually experience a kind of wage decrease.<\/p>\n

But raises should not be based on inflation alone. You should consider basing them on the cost-of-living adjustment (COLA). COLA is based on the Consumer Price Index (CPI), the average price for goods and services. It is used by the\u00a0Social Security Administration<\/a> to ensure retirees don\u2019t experience a reduction in purchasing power due to inflation, and employers would be wise to use it as well.<\/p>\n

In 2024, the\u00a0<\/a>expected\u00a0adjustment for cost of living is 8.7%<\/a>. So if you typically give an employee a $10,000 annual salary raise, consider an increase of $10,870 for the coming year.<\/p>\n

Other considerations on raises<\/h2>\n

Many founders factor in the employee\u2019s performance when talk of a raise arises. For example, when exploring salary upgrades, you can divide your employees into three categories as follows:<\/p>\n

    \n
  1. Below expectation<\/li>\n
  2. Meets expectation<\/li>\n
  3. Exceeds expectation<\/li>\n<\/ol>\n

    Then assign raise percentages based on\u00a0annual assessments<\/a>. For example, an employee who performs below expectations may receive a 3% pay increase. An employee who meets expectations could receive a 7% raise. An employee who exceeds expectations might get a pay raise of 10% or more.<\/p>\n

    Promote transparency when assigning raises<\/h2>\n

    Transparency<\/a> is a valuable tool you can use when giving raises so that your team doesn\u2019t feel they\u2019re being treated unfairly. For example, send out information to let employees know how much of a pay raise they can expect based on performance. That way, they don\u2019t think you\u2019re coming up with different figures for each person arbitrarily.<\/p>\n

    Supervisors or managers should also meet with employees when raises are due to review performance. You\u2019d be surprised how often this doesn\u2019t happen. Let team members know what they are doing well and point out areas of improvement. This reduces surprises and potential disappointment when raises are assigned. One of the best times to inform the team members about the raise they\u2019re getting is during these annual or semi-annual reviews.<\/p>\n

    Written reports add to this sense of transparency. You should have documents available to demonstrate when employees excelled or fell short in certain tasks. This may seem like\u00a0micromanagement<\/a>, but it builds trust and accountability in the long run. It also helps workers recognize their shortcomings so they can improve and get a better raise next year.<\/p>\n

    The impact of not giving good raises<\/h2>\n

    Generally, when employers hold back on raises, they are not doing so to \u201cpunish\u201d their employees. They simply don\u2019t feel they have the budget to give one. However, not giving raises may cost you money in the long run.<\/p>\n

    2024 research shows hiring a new employee\u00a0costs about $4,700<\/a> considering internal and external expenses. A standard formula to calculate hiring costs at your company is:<\/p>\n