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When an employee at your company asks for a raise, is that person treated fairly? Most organizations would like to say yes. But new data from PayScale, a compensation software and data company (disclosure: I work there), reveals that too often this is not the case. We surveyed more than 160,000 workers between November 2017 and April 2018 as part of our PayScale Raise Anatomy study, which resulted in two major findings. First, companies generally do a poor job of communicating why people don’t get raises. Second, there are significant racial gaps in whose raise requests are approved and whose are not.
According to our analysis, 33% of employees who were denied a raise were provided no rationale. Of those who did receive some rationale (whether budgetary constraints, performance, or some other reason), just over 25% actually believed it. And of those who didn’t believe the rationale or didn’t receive one, more than 70% said they planned to seek a new job in the next six months. Just 57% of employees who believed the rationale were planning to leave; of employees who received the raise they requested, only 42% were. Lastly, there was a difference in employer satisfaction of more than 20 percentage points between employees who believed the rationale and those who weren’t provided one or didn’t believe it.
In a separate analysis, we found that men of color are 25% less likely to receive a raise when they ask for one, compared with their white male peers. Women of color are 19% less likely, compared with white men. There is weak evidence showing that white women may receive raises less often as well, but because the data in our study was not statistically significant, we cannot report on what’s happening for white women with certainty.
Our findings run counter to the idealistic vision of U.S. workplaces being meritocracies. They also highlight the poor communication practices present at many companies.
All employers have a “pay brand“ — a reputation on how they pay, what they pay, and why they pay the way they do — whether it was built with intention or developed on its own. So what can organizations do to change these numbers? How do leaders ensure that all employees are given equal and fair consideration when requesting a raise? And how can managers build trust with employees who didn’t get one? Here are a few recommendations:
Create a standard process for evaluating raise requests. Leaving too much up to the discretion of individual managers or departments almost guarantees that some employees will feel unfairly treated or won’t have a clear picture of why their request was denied. Part of this process should specify who is involved in the ultimate decision. Ideally, it should be more than one person so that there are checks and balances in place.
Further, the less subjective you can be, the better. Even before someone asks for a raise, you should have access to a set of objective criteria that can guide your decision — and you should be able to communicate that criteria to employees. If you’re open about the process and the requirements for moving to the next pay level, it can alleviate anxiety for employees and build trust.
Use market data to evaluate pay increase decisions. The decision to grant a raise request can be influenced by a number of factors, but one of the most common is performance. According to Marcus Buckingham, a cohead of the ADP Research Institute and a best-selling author, people are unreliable raters of each other’s performance. “The effect that ruins our ability to rate others has a name: the Idiosyncratic Rater Effect,” he writes, “which tells us that my rating of you on a quality such as ‘potential’ is driven not by who you are, but instead by my own idiosyncrasies — how I define ‘potential,’ how much of it I think I have, how tough a rater I usually am.” He also notes that “no amount of training seems able to lessen it.”
Instead of relying heavily on performance metrics, ensure that every raise request prompts a look at market data for the given position. What are similar organizations paying for the role in your talent market? Up-to-date market data can help you determine whether the employee’s current compensation is objectively fair, relative to the market. It’s also important to look at internal pay equity for any employees in the same role to ensure you’re not solving a pay issue for one employee while creating one for their peers.
Be proactive about pay increases for existing employees. The employees who were most satisfied and least likely to leave their organization, according to our data, were those who said they’ve “always been happy” with their salary. This indicates that if employees get to the point where they feel they have to ask for a raise, they may already be feeling disengaged. Asking for a raise when the market data indicates they should have already received one just might be an employee’s last attempt at getting a fair wage before moving on to a new job.
So if your company is like the almost 60% of organizations that told us they’re concerned about employee retention, make sure you’re being proactive when it comes to increasing compensation for current employees based on market data. Too often, this type of data is only applied to new hires, which is another way that pay inequities can develop over time for workers in the same roles.
Collect data and confront your unconscious biases. Conducting regular pay equity analyses should be compensation table stakes at this point, yet 66% of employers have no plans to conduct a gender or race pay equity analysis in 2018, according to the 2018 PayScale Compensation Best Practices report. If you’ve never analyzed your company’s internal pay equity, or don’t do it with some regularity, how can you be certain people of color are being treated fairly when they ask for a raise — something our analysis indicates is uncommon?
If you do dig into this data and uncover discrepancies, you must be prepared to address them and their causes. Some of the solutions include the first three suggestions outlined above. But others require confronting some uncomfortable truths about bias within your organization and within all of us. A good first step is helping people at the organization who make decisions that affect other employees — from pay to hiring to performance reviews — understand that while, everyone has biases, there are ways to mitigate them. As NPR science correspondent Shankar Vedantam asserts, “Good people are not those who lack flaws, the brave are not those who feel no fear, and the generous are not those who never feel selfish. Extraordinary people are not extraordinary because they are invulnerable to unconscious biases. They are extraordinary because they choose to do something about it.”