Working out effective salary increase

pecunianonolet

Hi there,

in recent years my employer always reviewed the annual salary increases we may get. Sometimes we got told in March, sometimes in April or if they were early in February depending on their internal processes and budget approvals.

The company financial year runs 1st Jan - 31st Dec and even if we got told later in the year e.g. March it was always backdated to January so it was effective for 12 months.

Same last year (2023), got told in March that the increase will be paid in April and backdated to January.

This year they were exceptionally late and we got told about the increase mid of May and that it will be paid with the May salary but only backdated to 1st of May instead of 1st January as in previous years. The official company letter each employee gets states an increase of 3% (rather underwhelming) after an "annual review".

In my book, as they have not backdated it as in previous years, to me this doesn't look right as I effectively lost 4 months of the increase because of that. 

I fail to work out what the effective increase is. Would the calculation be correct in that way that I can say, (3%/12)*8= 2%

So I effectively only got a 2% increase because I worked 16 months for the last rate instead of only 12 months under the assumption that a rate increase has always been backdated in previous years.

Anyone able to help?

Dazed_and_C0nfused

3% is 3%.

You're just getting that 3% later than you would have hoped.

If you want to compare your earnings for two calendar years then if you got say £10,000 in 2023 you will get £10,200 in 2024, which is 2% more.

But if you look at the 12 month period from 01-05-2023 to 30-04-2024 and then the following 12 months it would be 3%.

elsien

It’s up to them when they implement it from.
I’ve had small rises in previous years but nothing this year. Just because it’s happened previously doesn’t mean they can’t skip a year. 

Mark_d

Why does it matter what the 3% pay rise equates to over the 12 month period?  You should be grateful that you're getting a pay rise and not facing redundancy, as so many people are.

Marcon

pecunianonolet said:

Hi there,

in recent years my employer always reviewed the annual salary increases we may get. Sometimes we got told in March, sometimes in April or if they were early in February depending on their internal processes and budget approvals.

The company financial year runs 1st Jan - 31st Dec and even if we got told later in the year e.g. March it was always backdated to January so it was effective for 12 months.

Same last year (2023), got told in March that the increase will be paid in April and backdated to January.

This year they were exceptionally late and we got told about the increase mid of May and that it will be paid with the May salary but only backdated to 1st of May instead of 1st January as in previous years. The official company letter each employee gets states an increase of 3% (rather underwhelming) after an "annual review".

In my book, as they have not backdated it as in previous years, to me this doesn't look right as I effectively lost 4 months of the increase because of that. 

I fail to work out what the effective increase is. Would the calculation be correct in that way that I can say, (3%/12)*8= 2%

So I effectively only got a 2% increase because I worked 16 months for the last rate instead of only 12 months under the assumption that a rate increase has always been backdated in previous years.

Anyone able to help?

I can see why you're thinking that way, but you've not 'lost' anything - the reality is the company decided not to award any increase for the first four months of this year, and a 3% increase from May.

Tucosalamanca

This seems to be a common theme with workers and certainly reflects my experience as an employer.

Wages have increased significantly in the past few years and all of a sudden, people expect to get similar rises every year.

Employers are walking a tightrope. They're in a similar position to workers and can't just magically create money.

OP has just got a 3% pay increase, with inflation at 2%, I'd say that they're doing ok.

They could always seek employment elsewhere if the salary isn't meeting expectations....

TELLIT01

Unless there is anything in the Contract of Employment to say there will always be cost of living increases, there is actually no automatic entitlement to any increase.

LinLui

They are under no obligation to give you anything, at any time, unless you have a contractual term that says that.

Anyway - what is a pay increase? Be glad you have one. My salary is worth 10.5% less than it was 10 years ago, and I haven't seen anything near 3% in the whole of that time - and won't this year either. Lots of people are not seeing anything. 

Exodi

I think we're being a tad hard on the OP.

Tucosalamanca said:

OP has just got a 3% pay increase, with inflation at 2%, I'd say that they're doing ok.

This is perhaps a tad disingenuous - given that their last pay increase was in January 2023, it's misleading to suggest inflation was 2% and personally I also think using CPI is unfair as most workers have seen their mortgage/rent blast off into outer space at the same time.

It doesn't take an economist to work out that a 3% pay increase to cover the period Jan-23 to May-24 (16 months) is unlikely to even put a dent in the increased costs we've all faced.

Nonetheless, the employer will know what they're doing and labour costs are a massive part of any business. At least in our sector, demand is at all time lows (which in normal times might cause you to reduce prices), but costs are also at all time highs. Combine this with massive government enforced minimum labour cost increases, and it becomes difficult to not haemorrhage margin, let alone giving people the big increases they hope for.

Personally the board and I agreed 5% this year which is around where we expected average earnings growth to be for July (when we enacted it). Of course you'd expect a business that is struggling to pay less (with the risks of staff jumping ship).

pecunianonolet

Usually around the savings board and surprised about the backlash here. My question was mainly around simple mathematics to work this out. Because when a letter states annual review I would expect that annual means every 12 months and not 16 months.

Jan 23 we got 3% wage increase when inflation was above 10%. We got an extra cost of living bonus of 3% followed by a 10% annual bonus. Not too bad but would have given up the 3% cost of living bonus any time in favour of a higher wage increase as this will benefit me long term, also when I consider pension contributions.

Our company bought another 2 or 4 (hard to keep track) companies over the last 2-3 years, we a re still hire many people and certain parts of the business struggle for resource as we are swamped with new orders. We are still allowed to fly business class and have first class train travel for journeys over an hour. 

The 3% increase is under that circumstance rather annoying, when your business is doing very well. 

To those moaners about "find another job", yes, maybe I should become a train driver. High in demand, earn much more as I do, can go on strike every couple of months and don't require bachelor and master studies plus all the fees and cost around it for education and no requirement for additional language skills either.

The increase wasn't even noticeable after tax considering everything that has gone up. 

Unless anybody does really bother to work out the mathematics and can help with this there is nothing else to add.

Hoenir

pecunianonolet said:

 My question was mainly around simple mathematics to work this out. Because when a letter states annual review I would expect that annual means every 12 months and not 16 months.

Personally I'd be more concerned as to why your employer felt it neccessary to implement such a policy. Such decisions aren't taken lightly. As will lead envitably to murmurings of discontent at the water cooler in the office. For the employer there's the risk of losing valued staff. Never good at a time when financial performance is key to the future success of the business.