Can You Give Yourself a Raise?
Everyone 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
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