Lesson 3 - Transcript
Getting A Raise Simplified
Kathy:
Hi and welcome back to Real Raise 101. I’m Kathy Dailey, producer of Real Raise, here once again with David Hubbard. Today, we’re going to go over the two key concepts of getting a raise.
So what are the two key concepts to getting a raise? We’ll show them to you through what we call the Ultra Simple Employment model. We have a handout that will help demonstrate this point, so if you’re at your computer, go to realraise.com/studyguides, and download and print out the pdf file titled Ultra Simple Model.pdf. Again, that’s realraise.com/studyguides, all one word, and print out the Ultra Simple Model pdf file.
It’ll help show what we are dealing with when getting a raise. It’s an extremely simplified view of employment, but very useful to demonstrate the principles behind every raise.
On the handout, what we have is a pie chart. If you don’t have it printed out and in front of you, just imagine a pie. The pie represents the value you bring to your employer, the company you work for. For the sake of discussion, let’s put a dollar value on it.
Let’s say that your pie is worth $100. This is a very simple model, so I’ll let you decide whether that means $100 a day or an hour or per sale or whatever. The pie, or the $100, represents the value of your contribution to the company doing whatever it is you do right now.
Now imagine that the pie is sliced into two pieces. One piece represents the value you receive from your employer via salary and benefits, and the other slice represents what your employer gets in profit or return on investment.
As I said, this is an extremely simplified model. It’s a concept designed to make a point for the sake of discussion.
Now, let’s assume that the pie is divided in a 60/40 percent split.
You are receiving 60%, and your employer is receiving 40% of the value you are bringing in.
You decide that you would like to get a raise and start receiving $70 instead of $60.
In order to accomplish this, you would need to work two strategies.
In the first strategy, you would redefine the split percentages. You could try to renegotiate so that you get more and your employer gets less. You could ask for 70% leaving your employer 30%, which would give you the $70 you are seeking. Most of the time, this is not attractive to employers.
But it could work, if your employer recognized that it might be difficult to replace you and find someone else to bring in the money that you would produce for him. In other words, it may be you were an outstanding deal at the 60/40 split, but at a 70/30 split, you’re still a good deal.
In Real Raise terminology, we call this strategy increasing or maintaining the split. Don’t use this terminology with your employer and expect a raise. He’ll have no idea what you’re talking about.
Notice that if this approach is taken to its extreme, where you get most of the ‘pie’, and your employer is left with very little it would be very unlikely that he’d want to keep you. Employers can also reach the point where there is no incentive to keep you because they can replace you with someone else who is cheaper.
It is possible to use the increasing the split strategy by itself, and we will, if you’re in a position where you’re not receiving a good split, and your employer can still be in a position where keeping you is his best option. We can’t solely rely on the strategy of increasing the split, because eventually your employer makes nothing and has no incentive to keep you.
The other basic strategy in getting a raise is to increase the value of the pie. So, instead of being worth $100, it’s now worth $120, or some larger amount.
We call this strategy, increasing your value or increasing perceived value. For simplicity, from this point forward we’ll refer to it as increasing value, and we’ll refer to the other strategy as increasing the split.
So here’s an example of increasing value. Let’s say you work in a company,. You’ve negotiated with your employer that you’re to receive $60. The company that you work for bills clients at $100 for that unit of work, and you receive $60.
Let’s say you develop some new specialized skills via training, and now your employer starts charging the clients $120 for your services. This is an example of increasing value. It’s not enough by itself, because you’re still only making $60. You haven’t yet received a raise. In order to get a raise, you need to bring in our other strategy, increasing the split.
Unfortunately, as you create value, employers have no obligation to give you a raise. This is an area where the conventional wisdom on getting a raise will let you down every time.
Next time you see or hear advice on getting raises, listen for the underlying strategies that are being recommended. Usually, they will recommend some kind of value increase strategy. Then there’s just an assumption that employers are going to automatically pick up on the fact that you’re providing new value and reward you with a raise.
In fact, employers are under specific instructions to reduce costs. So while you’re looking at increasing the split, employers are constantly looking at decreasing the split to work it in their favor.
While you’re looking to increase value and be rewarded, employers are looking to accept the new, higher value you bring, yet pay you the same.
This is simply business, and we should not take it personally, even if that goes against our human nature.
Let’s go back to our example. You were making $60 when your company billed its clients $100. You increased the overall value to $120, and of course your company wants to continue to pay you $60. In order for you to get a Real Raise out of this increase in value, you’ll need to renegotiate. In this case, it would probably be easy to sell your employer on the idea of maintaining the 60/40 split. Now you’re both making more money – you’re making $72 instead of $60, and your employer is making $48 instead of $40.
These strategies, increasing value and increasing the split, are at the core of the work that we’re going to do in Real Raise.
The easiest way to get a raise is to find situations where you can increase value, after the value increases, you maintain or increase the split, so both you and your employer make more. This is the easy way to get a raise, because everyone wins, and it’s usually fairly easy to sell your employer on the concept.
The strategy of increasing value is a win for everyone. And we can continue to employ it, as long as we can think of ways to increase value. It’s the best long-term solution for both you and your employer.
In a perfect world, you and your employer would team up to increase value. You would then split the benefits of that in a fair manner.
The fact is we don’t live in a perfect world, and few businesses are willing to voluntarily suggest an idea like this.
Why doesn’t this work?
One of the oversimplifications in our employment model is that we assume that there could be a computation of your value that everyone could agree on. In our example, it was fairly straightforward and easy to see, although the example was still naïvely simple and did not address things like overhead, expenses and various other factors that businesses deal with every day.
In most jobs, there is no easy way to calculate your value, as you are generally working as part of a team, and it’s difficult to break out which part of the value can be attributed to you. Any valuation would just be your opinion. Others, like your boss, might have a different opinion, and I’m sure your coworkers would have a different opinion as well. Who determines who is right?
Another factor is the people charged with giving raises are also charged with saving the company money wherever possible. They are generally not allowed to give out raises except under special circumstances. Keep listening to Real Raise to become an expert in creating those kinds of special circumstances.
Our employment model is too simple to be an accurate representation of the real world. The model does not take into consideration complexities such as personalities, company policies, politics, and unpredictable human behavior.
Much of what we’ll talk about in Real Raise 102 are specific methods and techniques for ensuring your success in spite of these complexities.
Our model is good for pointing out the two concepts of increasing the value and increasing the split. These two concepts will remain at the core of every raise effort we will discuss.
Let’s look in another simplified, but useful view of getting raises. This one we call: ‘they have to want to give you a raise’. This makes sense doesn’t it? It’s another real raise cornerstone concept.
‘They have to want to give you a raise’. Again, very simple and usually overlooked. As employees, we are focused on what we want and too often ignore what the people giving raises want. At best, we give them what we think they want, without discovering what they really want.
Let’s take this simple concept and look at it in detail. Let’s look at the ‘they’ in ‘they have to want to give you a raise’.
Who are ‘they’? In other words, who are the people who will need to be involved in you getting your raise? Do you know? Are you sure?
This is important and we will get into it more later.
Now let’s look at the ‘have to’ in ‘they have to want to give you a raise’. It means that it’s a requirement on the ‘want to’ part of the sentence. In other words, you are not getting a raise unless the right people want to give you one.
And what about that ‘want to give you’ part? How in the world are we going to get them to want to give you a raise? That is a big part of what real raise is all about.
And the final part of the concept is ‘a raise’. We need to know what we mean by a raise. Is ten dollars good? 5%? An increase in stock options? What is it you’re after?
If you don’t know what you are after, you are not alone. And you are not likely going to get a raise either. Part of the Real Raise process is defining the raise that will work for you.
Here is another key idea: Bosses give raises to prevent problems. What kinds of problems? Very particular problems, like the problem that you might go off and do something else, leaving a void at the company that would be difficult to fill.
So, if they’re going to give you more money or benefits to keep you around, they’re going to want to know what is going to work. That’s just one of the reasons you need to know exactly what you want your raise to be. There are some other reasons and we’ll talk about these in future lessons.
As we go through real raise, it could seem that we have a negative attitude toward employers. Let me assure you, we don’t. If there were no employers, there would be no raises, or jobs either, for that matter.
When I imply that employers are adversaries, it’s because they occupy an adversarial role. It’s part of their job to keep you from getting a raise, if at all possible. Nothing personal, just business. And we actually want them to keep costs down. If they didn’t, products and services would be much more expensive.
I try to remind you of the adversarial nature of the relationship because I want you to get a raise. If you buy into the idea that your company is going to look after you, and your boss is going to go to bat for you, your life will be easier. But you won’t get a raise. You’re going to have to look out for yourself, or accept the disappointment.
You’re in a partnership of sorts with your company and your coworkers. That’s true. But when it comes to getting raises, you, your company, and your boss are in conflicting roles. We need to acknowledge, and respect and work with that relationship instead of pretending that the relationship is something that it’s not.
So when I imply that your company and your boss do not have your best interests in mind, I’m not saying that they’re bad. I am just saying that they are doing their jobs to hold down costs, as they should.
If you haven’t already, don’t forget to go to our website, realraise.com/studyguides, and download the Ultra Simple Employment model pdf file. Print it out and take a few minutes to familiarize yourself with it. We don’t have an exercise for you this week, but feel free to listen to any of the lessons. Then, when you get our next email, listen again!
Thanks for joining us today, and we look forward to joining you for the next episode of Real Raise 101.
