A Pay Raise 4 Times a Year?

By: CBS MoneyWatch
By: CBS MoneyWatch

July 21, 2014

CBS MoneyWatch - Would you rather get a $5,000 pay raise immediately or have it dribbled out over the course of a year?

Some companies now think giving smaller raises more often will keep employees from leaving, The Wall Street Journal reports. They are dropping the tried-and-true model of one large increase a year, but it's not clear that the shift will ultimately produce a happier workforce.

The thinking goes like this. Say an employee is disappointed at the amount of his or her annual raise. That worker may start looking to leave the company rather than wait another year in hopes of a better raise. But under the new system, if an employee isn't happy with a quarterly raise, the next increase is only a few months away.

"People realize, 'If I'm really busting my butt and delivering, there are rewards here,'" the chief executive of Zulily told The Journal. The company reviews employee pay every quarter. Another company, Shutterfly, says it gives employee bonuses up to four times a year and reviews salaries twice a year.

There are a couple of drawbacks to the model, though. First, it creates a lot more work for companies and payroll departments. Managers must be assessing employees -- and how their performance translates into salary increases -- on a more constant basis.

Another perhaps more glaring problem: As employees move up the salary ladder, what happens when the frequency and amount of the raises slow down? One CEO admitted to The Journal that "it's definitely a risk" when workers higher on the totem pole see their own rate of raises fall.

Twitter users loved the idea of several pay raises a year. "(Probably) great for morale!" one person wrote on the site.

For now, this unusual pay model isn't taking hold with the vast majority of American companies. Only about 5 percent of them raise salaries more than once a year, The Journal reported, citing a study by consulting firm Aon Hewitt.

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