Can You Give Yourself a Raise?

April 13, 2009 by  
Filed under Money and Behavior

give_raiseEveryone who works for a living wants to receive a raise or at least appreciates getting one. If you are not one of those who strive for a little extra in the paycheck, you probably won’t understand the remainder of this post. For the rest of you, please read on and then let me know what you think about the concept of giving yourself a raise.

Giving Yourself a Raise in Small and Large Businesses

One of the theoretical benefits of owning a small business – compared to working for a large enterprise as a non-owner – is that you can often give yourself a raise simply by working harder. For example, if your small business is a service provider, your income is a direct function of how much time you spend providing those services to your customers. Need to bring home more income? Work harder by providing more services to more customers.

Granted, this theory assumes that there are always customers out there who need your services. In cases where the economy is down and/or there is a lot of competition, the “work harder” part may fall more on the marketing and sales side of the business.

Either way, it is highly motivating to know that your hard work will more than likely pay off with a direct benefit to your personal bottom line.

But what about the American workers who, as employees in a large enterprise, cannot give themselves a raise? Do they look at their economic futures differently? I think they do. These folks know that hard work is supposed to be valued by those who manage the business. But they also know that individual hard work inside a large enterprise is not always perceived by those who are handing out the money. They understand that other factors – office politics being one – can trump hard work. Sometimes the employee who does the best job of making the boss look good gets more recognition than the employee who works harder but stays below the radar. This realization can crush the “hard work” incentive in a hurry.

Working on commission can help as will a bonus plan tied directly to productivity. There aren’t many of the latter and they can be yanked away at any time, just as 401(k) matches have been terminated. That can’t be a good feeling for an employee with ambition and drive to succeed financially. I don’t have any keen insights for those working in large enterprises, other than to make the boss look good and hope for the best. This is one reason why Mr. ToughMoneyLove counsel’s his sons to be on the lookout (and to prepare) for ways to make money which they control 100%.

Even in a small business, the “give yourself a raise” motivator can come and go or even disappear over time. I have seen some of this in the business I partially own and work for. It usually happens at budget time, when the business owners review the previous year’s financial data and then project income and expenses for the next budget cycle. If those projections do not include an increase in financial benefits to the owners – or worse, a decrease – people get antsy. Even if they don’t say it, they are thinking “why am I in a small business (or this small business) if an increase in my hard work doesn’t translate to increased benefits to me?” I can’t blame someone for having that thought process.

For some small business owners, the alternative path to giving yourself a raise is in the exit strategy, i.e., building and then selling the business. That’s OK if it was your strategy all along. It won’t work if you have a business that cannot easily be sold at an appreciated value.

When You Can’t Give Yourself a Raise

So what happens to a small business to cause the owners to believe that they cannot give themselves a raise? I think there are three factors at work, two of which are internal and one is external.

The first factor is failure to control overhead. Small business owners want to grow the business.  No surprise there. But too often growth for growth’s sake becomes the goal. The trappings of a larger business are acquired, e.g., larger and nicer office space, more staff, more large company perks. Over time, the percentage of revenue that is allocated to the owners slowly decreases, to the point that a majority of every dollar of new revenue is used to pay overhead. It is hard to picture “giving yourself a raise” when that happens.

The second factor is dilution of ownership. In a business owned by one or two people, every business expenditure is looked at as coming directly from the owners’ pockets. It’s very real and painful. When more owners are involved, it is harder for one of the owners to think about money being spent as “my” money. Eventually, money in the bank is no longer “my money” or “our money.”  Instead, it becomes “business money” and spending it becomes less real. I fight this constantly. It’s probably a losing battle. For some businesses this is inevitable.

The third – and external – factor is taxes. If the government takes an ever larger share of the income that would otherwise go to the business owners, it becomes more difficult to give yourself a raise by hard work. The tax increases can be imposed on the business directly and on the incomes of the business owners. We are going to see more of it. It will no doubt depress the “give myself raise” motivation.

Final Thoughts on Giving Yourself a Raise

Some readers are probably scratching their heads right about now, wondering why Mr. ToughMoneyLove is writing about raises when millions are worried about just having a job.

I don’t want to “just have a job.” I don’t want people working with me who “just want a job.”  I want to be surrounded by people who are motivated. I really don’t care too much what motivates them, as long as it is available to them.

Now you are ready to tell me about all of those HR studies that show that money is well down the list of things that motivate employees. That may be true. But my experience is that when there is a disconnect between hard work and employee compensation, motivation can dissipate over time. “Atta boys” only go so far.  I believe that every employee – and business owner – should at least believe that they can give themselves a raise by working harder, by being more productive. If not, something needs to be fixed.

So let me conclude by asking if you are working in a position where you believe that you can give yourself a raise. If not, why not – and how does that affect you?

Photo credit: Rachel’s Flickrs

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6 Responses to “Can You Give Yourself a Raise?”
  1. MasterPo says:

    Well written. I never believed the HR claims about money being a poor motivator. I think that was made up to simply provide supporting reasons for not giving bigger raises.

    Double my salary and you’ll see my motivation climb! 😉

  2. Rick Beagle says:

    Excellent post, but if I may, I would like to add my own advice to this column.

    I have on a number of occasions had to participate in the suspension of raises and benefits due to a downturn in the business cash flow (your comments about growth for growth sake is dead on). While this is sometimes a necessity, please realize that suspending raises or other benefits, only to turn around and give yourself and other management team members raises or large bonuses should be discouraged. Of course I am not referring to bonuses that are due as part of an agreed to pay structure, but rather monies that are above and beyond this. Unfortunately these are often driven by ego more so than any real need.

    I even had on one occasion a manager tell me he was sleeping with the bookkeeper so he was positive that no one would discover that he passed out bonuses?! Which I suppose provides me with a litmus test for you, if you have to swear everyone to secrecy, or sleep with the accounting department, then you might want to rethink this distribution. If you feel the need to pass out money to retain your top talent, consult with your CFO, there are much better alternatives that driving down your employees morale (trust me, they always find out).

    Rick Beagle

  3. MasterPo says:

    Sleep with the bookeeper – why didn’t I think of that? 😉

  4. Irina I says:

    Great post! As a recent college graduate (December 2008) working in a consulting firm, I have to say that I mostly work hard to build my skills and my professional reputation. It is not so much for the bonus, although that is nice. But I also work in a very supporting firm where my efforts are recognized by upper management, so that definitely helps, too.

    As for taxes…they are awful. And what is more frustrating is what our government has done. My generation (Gen Y) will end up paying for this for years to come.

  5. MasterPo says:

    We spent how many BILLIONS$$$ of tax payer dollars to bailout GM and they are *still* going to go chapter 11?

    But don’t worry. Obama and gang know what they are doing. Generating $10 TRILLION in debt will be paid off later in economic growth with no inflation or interest rate spike. You’ll see. They know what they are doing.

  6. sigh says:

    Doesn’t matter how hard we work where I work, nobody gets a raise EVER.. unless you’re a hardcore kiss-ass. Also, It’s great to hear that people in the office are getting $100,000 christmas bonuses while the rest of us try and live off of our 4 day paycheck (because times are tough and we can’t afford to run on fridays.) and scrape together a meager $265.00

    I need to quit. I don’t recommend working for small business. EVER. Corporations for me from now on.

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