How not to determine a raise

A friend, whom I’ll call “Kirk,” works in a startup. A really good developer, whom I’ll call “Amy,” reports to him.

Kirk lobbied his boss for a big raise for Amy. He thought about this the right way:

I’ve researched the current market rates for developers of Amy’s level and abilities. She’s very good, she’s worked hard for us, and I expect great things from her this year. The plan calls for raising her salary to $X, But I suggest we raise her salary to $(X + n) because that’s the going salary for someone like her in this area.

Kirk’s boss thought about it the wrong way:

A raise to $(X + n/2) would be better. It’ll be a large increase over her current salary.

The free market doesn’t care if your employee’s salary was low last year. Yes, she agreed to work for that salary. Let’s ignore simple fairness, and recognize that she gets one headhunter ping a week in this market. Is being stingy worth the risk?

Say the amount in question is $5 K per year. That’s $417 per month to keep a valuable employee on their tippy toes. $417/month is an asterisk in the firm’s budget! In comparison, what’s the cost of Amy leaving? Add up the workplace disruption, headhunter fees, and the time spent on recruiting and interviewing and orientation and teaching the replacement the code base. Add in the cost of the unknown vs. the known.

So you saved $5 K a year. Brilliant.

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