Should employees get a pay rise every year?

Should employees get a pay rise every year?

Should employees get a pay rise every year? Should employees have an expectation that their pay will rise every year? Not if HSBC is to be believed.

The company has taken the decision that managers at its wealth arm will not receive pay rises this year – despite the fact that the company had recently changed its mind about imposing a pay freeze. In fact, it is the third change to its pay policy in the last three weeks.

Its new plans will see junior-level staff receive a pay increase this year; while mid-level managers will see pay increases on a selective and meritocratic basis. However, no top-level managers will see their pay rise.

So should employees have an expectation of automatic pay increases every year? Sean Harrell, partner and senior advisor at Howe Harrell & Associates, believes that the only obligation for employers is to keep pay in line with inflation.

“I believe that salaries should be adjusted for inflation on a periodic basis,” he said. “Not necessarily every year though. The employees income needs to keep pace with inflation otherwise they are actually losing purchasing power each year which will affect their standard of living and probably force them to look for alternative employment.

“The system that we use at our firm is a two tier system. The employee has an annual review to determine if their salary requires an adjustment for inflation. And if the employee has contributed over and above their regular duties and contributed to growth in the firm that year, they also get a performance bonus. 

“I believe this accomplishes two things:  the employee knows that their salary will keep pace with inflation which provides peace of mind. Plus if their extra effort results in the firm having a great year they know that they will be receiving a performance bonus which should provide more incentive for them to continue going that extra mile for the firm which is what every employer wants from their employees.”

In the case of HSBC, around 80 per cent of mid-level managers are not expected to reach the standards that would earn a pay increase according to The Financial Times. A bonus pool originally intended for payments in 2017 will now be used for the 2016 pay increases.

So what would you do if you were an employee and told your pay would not increase for a significant period in time? Harrell believes it leaves employees with a difficult quandary.

“I imagine it would depend on why the pay is being frozen,” he said. “If it was for a greater good that could potentially reward me in the future, then yes, I would stay. If it were for some other reason I would probably look for alternative employment.”

What do you think of automatic pay rises? Should they be expected or only performance related? Leave a comment below with your thoughts.