When it comes to negotiating inflation-linked salary increases, there has long been a simple rule: don’t mention inflation.
Key points:
- With rising costs and labor shortages, workers seek wage increases
- A 4.6-5.2% increase is a ‘good starting point’, say labor experts
- Asking for more money because everything is more expensive can sometimes work, but proceed with caution
The reasoning was that basically the bosses don’t care about your financial situation and whether or not you can make ends meet.
Pay raise negotiations should be about what you bring to the organization and why it needs you, rather than what you need.
But with inflation now at its highest rate since 1990, and most Australians worse off, some experts are changing their advice.
Many workers say they asked their boss for a raise.
Emma, 29, a property manager in Melbourne, recently tried her luck.
“I told them that with the rising cost of everything, my salary was no longer sustainable,” she said. To hack.
“I didn’t want to leave, but I was ready to go somewhere closer to home that offered a bit more.”
And it worked, after a few days his employer agreed to a 7% pay rise.
Amy, 24, a designer in the NSW area, had a very different experience. She also brought up inflation with her boss – and was pushed back.
“They said they couldn’t justify paying me more,” she said.
So how can you get the chat?
How much are you asking?
Australia’s annual inflation rate is currently 6.1%, meaning prices have risen as much over the past 12 months.
If your salary has not increased during this period, you are effectively earning less than 12 months ago.
So if you made $50,000 in the last year, you are $3,000 worse off.
Most Australians have seen their wages rise a little – annual wage growth was 2.4% in May – but this increase has not been enough to cover inflation.
If you were on $50,000 a year ago and your salary has gone up 2.4%, you’ve still lost $1,850.
John Buchanan, a labor market expert from the University of Sydney Occupational Health Research Network, recommends asking for a pay rise of between 4.6% and 5.2%.
These are the amounts the Fair Work Commission (FWC) has increased minimum wages and awarded wages this year.
The FWC, which is an independent tribunal, arrived at these figures after extensive analysis and consultation, so they are a good starting point, Prof Buchanan said.
“Their decision is on the website. Take it in the negotiation,” he said.
“If a worker can achieve this increase in the current situation, that’s a good result.”
Check your contract
The type of employment contract you have signed with your employer affects your ability to negotiate a raise.
Company agreements are usually negotiated collectively by the staff of an organization, usually represented by a trade union, while employment contracts are negotiated by individual employees.
If you’re a casual worker, you likely qualify for an allocation rate, which is the minimum amount you must be paid.
Even if you’re on the award rate, you can always negotiate to get paid more.
Need I mention inflation?
Mentioning inflation in her negotiation worked well for Emma from Melbourne, but expert opinion here is split.
“Don’t talk about inflation,” said human resources specialist Karen Gately.
“Employers are thinking about their own books and the rising costs of their business.”
In other words, if you go to your boss saying that you need more money because of inflation, he may say that the company’s costs have also increased and that it cannot afford a salary increase.
Emily Barnes, a professional mediator, agreed that “traditionally” an employee’s financial pressures were not “the company’s problem”.
But there are some exceptions to that, she added.
Workers in sectors with labor shortages are in a better position to negotiate a wage increase, in which case referring to inflation can be useful.
On the one hand, it can help make the conversation less awkward.
“The benefit of having a conversation about inflation in this negotiation is that it depersonalizes it,” she said.
“And women in particular, who have traditionally had a hard time asking for pay rises on their own behalf, it probably makes them feel more comfortable..”
Prof Buchanan said workers should “absolutely” mention inflation.
“Wages should always reflect inflation and overall productivity,” he said.
But proceed with caution, he added.
“Employers get quite irritable when workers start talking about salary.”
Do your preparation
Whether it’s printing out the recent FWC salary increase decision, researching the average pay range for a similar role, or making a list of why you’re good at your job, it’s worth worth being prepared.
“Preparation is key,” said Ms Barnes, the mediation expert.
She recommends writing what you want to say. Even if you don’t use it in conversation, the process will help you.
What do you want to accomplish? What are you ready to accept? What are you prepared to do if your request for a raise is denied?
Are you willing to quit, even if you otherwise like your job?
“Unless you have a really clear idea of these three things, then you have a bit too scattered an approach in terms of negotiations.“
Karen Gateley, the human resources specialist, also recommended preparation.
“Always think about the value you add to the business,” she said.
This applies to any type of work, even waiting tables.
“You can talk about building strong relationships with repeat customers.”
Is it a good time to ask for a raise?
Mostly yes.
Australia is in the midst of one of the biggest labor shortages in its history, with the unemployment rate at its lowest in 48 years.
Workers in most sectors were in a stronger position than usual to negotiate pay rises, Ms Barnes said.
This includes jobs in hospitality, retail or care (these are sometimes referred to as low-skilled workers), she added.
“It’s really hard to replace workers, she says.
“I would probably say low-skilled workers have a better bargaining position than previous periods.“
Professor Buchanan agreed, but stressed that wage growth remained weak.
One reason for this was that employers remained “often very reluctant” to pay an employee more, as other employees would demand the same, magnifying the cost to the entire company.
The only exception to this rule was new workers, who could start with a higher salary without rocking the boat.
“In a workplace, there’s such a thing as salary relativity – if you move one person’s salary, you have to move other people’s salaries.
“Most workers get a raise by changing jobs.”
He predicted that only around 1-2% of the labor market would manage to negotiate a wage increase in line with inflation, despite the labor shortage.
Emma from Melbourne, who got a 7% pay rise without having to quit her job, seems to be one of those lucky few percent.
She said she framed the compensation conversation around what was “sustainable.” She didn’t want to leave, but was ready to.
“I said, ‘I just need to look at what’s viable for me.'”
In the end, his boss was willing to pay an existing employee more than go to the trouble and risk of hiring a new one.
“Investing in new talent and the ability to change office dynamics isn’t always worth it, when someone is only asking for $5,000 more,” Emma said.
Amy’s story also ends happily. After her salary request was rejected, she found another job – one with almost double the salary.
“It’s ignorant of business to say we don’t care about your finances,” she said.
“If you can’t afford to pay employees a living wage, you can also inflate and raise your own prices.”
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