Happy with your pay rise? Here’s what’s behind it

By now many of you will have had the compulsory year-end performance review that will hopefully have gone well and resulted in a bumper pay rise.

However, how do we know if we really did well and what we should expect? Often the whole process seems shrouded in secrecy and the HR department seem to work its dark magic behind closed doors.

The fact is, those of us working in the Middle East can become unrealistic in our expectations. With governments in the region sometimes putting forward pay adjustments of up to 100 per cent for nationals working in the public sector, the standard pay rise offered to expats can seem a little miserly. However if you offer a 4 per cent rise to a worker in most parts of the European Union, the chances are they will snatch your hand off, having been frozen out of pay rises in consecutive years.

Let’s assume that the upturn in the economy has made it possible for us all to see an increase in our salary. Whoopee – what should we hope for?

It depends on your performance, your pay position against the external pay market, your pay position versus colleagues doing the same thing, your flight risk from the company and what your employer can afford.

That all sounds complicated, so in basic terms it is worth thinking through what a pay rise is actually meant to do.

Essentially it has three main purposes.

• Firstly it is meant to keep you aligned to the market. The theory is that good HR functions regularly test the market and assess how much the competition is paying for roles like yours. Therefore the primary purpose of the pay rise is to ensure you are staying in touch with the market rate for your job and your talents are retained. The market rate is, of course, affected by the scarcity of the skills you possess and the inflationary pressures of the economy, so it rarely stands still, hence the need for HR to participate in a compensation survey each year.

Even if you were already paid at the market rate you could reasonably expect a cost of living adjustment to offset rent increases, school fee hikes and increased utility bills year on year. Given that the official rate of inflation might not correlate to those increased costs, HR will usually view the real barometer for change as the compensation surveys that consultants produce. The consulting industry’s estimate for the UAE last year was an average pay increase of 4 to 5 per cent.

• Assuming you were already competitive with the external market, or even deemed below it, it is still possible that you received a lower pay rise than the aforementioned 5 per cent. That could be because the second and third purposes for pay rises may mean the available pay rise pool was diverted away to more deserving cases.

The reason: pay rises are meant to reward increased competency or experience. Typically those who are new in a role will get paid less than those who have experience, however as your contribution increases and you add more value to your employer, you will move towards the internal rate for the job.This process of internal equity is supposed to ensure that over time any gap between colleagues narrows. In most roles you should be fully competent after three years and the rationale for paying more for 11 years over seven years in a role is hard to justify as both employees probably perform at similar levels. However, those who are still growing into the role may be getting a “merit increase” to recognise their improving contributions. If you are at the top of the pay band, your pay may slow down while colleagues catch up.

• The last reason for a bigger pay rise will be performance-related – those who did well in the year-end performance review might have been given a bigger pay rise than their colleagues. While this sends a clear message that performance matters, it also embeds the cost of one good year into the employee's pay structure forever, which is why many organisations differentiate solely on bonus payments rather than carrying the cost forward indefinitely.

Now that you know about the juggling act your HR team is trying to perform, you may at least understand why you got more or less than your colleagues. However, one tip for you to consider next year is to have the conversation with your boss early because by the time they sit down to deliver the news it is invariably a done deal. Budgets are set in November and performance scores are moderated in December.

Take my advice and lobby early.

Martin McGuigan is a partner at Aon Hewitt Middle East, where he leads the reward consultancy practice