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7/25/2007

Myth 153 Annual increment

Annual increment In compensation for employees, people have taken it for granted that there must be an annual increment every year, good time or bad time. So every employee expects some kinds of increment as if it is an entitlement. Only during really bad time that annual increment could be waived. This expectation is quite natural given the fact that many employees are being paid just about enough to keep them alive. They needed the monthly salary to live on, without much savings to last more than a couple of months. And with inflation and rises in the prices of everything, if there is no increment, they are actually getting worst off. They may be getting the same income, but lower purchasing power. Thus, an annual increment to a large extent will help to maintain a certain standard of living and purchasing power. Now this expectation is being extended to the CEOs and top management whose compensation package is not only huge beyond imagination, but also with all kinds of perks and incentives. Even these turkeys expect a payrise every year when the cost of living really hardly affect their lifestyle. Then the other fallacy is to peg annual increments in percentage terms. You can imagine how much is 10% to someone whose income is $1 million or $10 million. This is the myth in human resource compensation that has been perpetuated and will be likely to be continued forever. After all the CEOs are not going to say no. More likely they will insist that the practice should be continued in their best interests.

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