Tenure Isn't Justification for a Raise

Employees frequently cite tenure in their list of reasons for a promotion or a raise. While tenure may show dedication, it doesn’t necessary correlate with value to a company. To get a raise, you’re going to need more than tenure – you’re going to need to add additional value. So, let’s discuss while thinking about this like a data analyst.

Years ago, I was working at this large tech company and one of my co-workers had been with the company for 6 years. He mentioned how he had “put in his time”, had been loyal to the company, how others who had been there for less time had been promoted, and how he deserved a promotion. In another case, I was reading an article where an hourly employee only got a 2% raise even though she had been an employee for 5 years. What these stories have in common is that both individuals mistook tenure for value. In the capitalistic world, companies are all about getting the most value for the lowest cost. While it seems brutal and unfair at times, most individuals behave the same way as a company.

I’ve seen this with a backlash to the request for tips (post-pandemic) for the most trivial of services. I even saw a joke recently where a girl came up to pet someone else’s dog and the dog owner said, “Would you mind answering a question?” and then handed her phone to the stranger, asking for a tip.  As someone that values their hard-earned money, it’s unlikely that you would freely give away any more of your money than necessary, without receiving something additional in return.

For example, if you’re accustomed to paying $40 to someone for them mow your lawn, you likely wouldn’t be willing to suddenly start giving that person $60 to do the same job, simply because they’ve been mowing your lawn for the last 3 months. Why? Because they didn’t offer you any additional value. You’re getting the same services, yet someone is expecting you to pay more for it. That’s exactly how the company is looking at raises. For the company, they are considering 2 main things when dealing with compensation.

Considerations from the Company’s Perspective

First, what is the value that the company is receiving? The company wants to get the best value, not necessarily the lowest price. Sure, they could probably find someone with no education or experience, and that person would cost less than someone with a master’s degree and 10 years’ experience.  But the speed, accuracy, and quality would likely be sacrificed. This means that the company will ask a question such as, “If we pay twice as much for the experienced person, will we get our money’s worth?”

If the person with no experience costs $20/hour, but helps the company generate $100 in sales, the company is getting a 5x return. But if they company pays the experienced person $50/hour and that person help the company generate $1,000 in sales, the company is getting a 20x return. In this case, the company is getting more value. But paying more doesn’t always equate to more value.

If we fast forward 5 years and assume that the person making $20/hour suddenly asks for $30/hour, but their output is only 25% better, let’s say $125 in sales, is this the best value for the company?  At a $30/hour rate, even though the employee produced more in sales, the actual return on investment would only be 4.17x. The company would be paying more to get less value. If the company can hire someone at $20/hour and generate $100 in sales, this may be a better option than giving the tenured person a raise. In this scenario, longer tenure at the company and paying a higher wage did equate to more value, but not the best return on investment.

The second thing that the company has to consider is the cost of change. Meaning, would it be detrimental to the company if they lost a 5-year employee because they didn’t give that employee a large enough raise? If the employee isn’t delivering more value, but the cost of replacement is too high, the company may decide to pay more because the equation for total value has changed.

For example, if we assume that it costs $30,000 to interview, hire, and re-train a new employee, those costs are equivalent to roughly $14/hour for an entire year. If the company had a chose to give a $10 raise to $30/hour, versus risk losing the employee and having to hire a new employee at $20/hour, plus cover the $14/hour new hire costs, the company would be better off to give the $10 raise. However, that is all in theory and while it sounds simple on paper, but the calculation is more complex.

If the company gives one employee this raise, even though they aren’t adding more value to the business, what else will happen? Word will likely get out that one employee, who didn’t add more value, got a large raise. Other employees that do add more value will become upset, rightfully so, and demand a raise, even if they were being paid the going market rate. Suddenly, the company isn’t giving a raise to one person.  They are giving a raise to everyone, whether the employee deserved it or not. In this scenario, it isn’t worth it to the company to retain the employee even those the cost of replacement is high.

This seemingly easy decision to pay a higher wage to one person, to avoid the risk of replacement, has created a massive snowball effect. This is why in many situations, a company may be willing to say avoid given raises to certain individuals, even if there’s a high cost of replacement.

If You Want More Money, Deliver More Value

The easiest way to justify a higher salary is through value creation, not simply through staying with a company for a long period of time. If you’re looking for a raise and not a promotion, you’ll need to demonstrate how you’ve provided value, and how your additional cost (above that of someone that they could hire today) is justified. And if you’re looking for a promotion, you’ll have to demonstrate how you’ve provided a significant increase in value, which is frequently demonstrated through a significant increase in your scope of work and responsibilities. But if you aren’t being paid the market wage or your added value isn’t being recognized, it may be time to find an organization that does value all that you have to offer.

Brandon Southern, MBA, is the founder of Analytics Mentor, specializing in providing analytics advising, consulting, training, and mentorship for organizations and individuals. Brandon has been in tech for 20 years in roles including analytics, software development, release management, quality assurance, six-sigma process improvement, project & product management, and more. He has been an individual contributor as well as a senior leader at start-up companies, GameStop, VMWare, eBay, Amazon, and more. Brandon specializes in building world-class analytics organizations and elevating individuals.

You can learn more about Brandon and Analytics Mentor at http://www.analyticsmentor.io/about