The 8 types of raises and why you might receive them

Believe it or not, there are multiple discrete types of raises that employers commonly offer their workforce. We discuss them in detail below, including when they might come into effect and how much you can expect to gain with each one.

Cost-of-living raise

The cost-of-living raise, also known as the cost-of-living adjustment, is the most frequent type of pay increase on this list. It occurs once every one or two years, regardless of employee performance, to counter the effects of inflation. Though the raise may be small, it can help workers retain a minimum level of buying power.

The amount you can expect from a cost-of-living raise depends on the economy. Employers calculate an appropriate raise amount by assessing the cost of living in the locations where their employees live and work. Imagine, for example, that economic inflation in a particular area is 4%. In that case, an employer in that area might raise salaries across the workforce by at least that amount. If it were lower, the employees would essentially be earning less because their earnings no longer accommodate the same quantity of goods they could previously afford.

“Because most employers acknowledge that money represents a combination of financial and emotional fulfillment, they regularly offer pay raises to their employees. Not all raises are the same, however, and recognizing the different types of raises available can help you determine whether you're earning according to your value.”

Completion increase

Completion increases relate to specific circumstances that not every employee experiences. Say that a condition of your employment is a 12-week probationary or training period, during which you earn a reduced wage. If you complete the trial period satisfactorily, the employer increases your wage to the standard amount for your position and experience level. Otherwise, the employer may extend your probationary period or end your employment. The same protocol may apply if you complete voluntary training or upskilling.

The amount of a completion increase will vary from employer to employer. It depends on the reduced rate it pays you during your probation and what qualifies as a standard base rate for your employment conditions. 

Merit increase

A merit increase is a performance-based pay raise. The idea is that the better an employee does at work, the more likely they are to receive a merit increase. It shows that the employer recognizes an employee's contributions and wants to express their gratitude monetarily, which demonstrates there are concrete rewards for being a top contributor. 

There's no single way that employers determine who qualifies for a merit increase. In some functional areas, such as sales, the decision might be based on the extent to which an employee regularly exceeds targets. In less metric-driven professions, it could be a matter of a manager's general impression of an employee regarding work quality and consistency. Similarly, the amount of the increase is likely to vary from company to company, though 3% is often set as a benchmark. 

Promotional increase

A promotional increase is essentially the same as a merit increase, except it's directly tied to a change in job title. Presumably, the employer has deemed an employee capable enough to move up the ranks and take on new responsibilities. In exchange, the employee receives a higher pay rate. 

The amount your pay increases following a promotion will vary from employer to employer. Some companies have policies that dictate promotional increase rates depending on the number of pay grades you move up — for example, a 4% increase from your current salary if you move up one pay grade or a 7% increase for moving up two pay grades. Other companies might base your pay increase on more complex factors, such as how long you've been with them and how long it has been since your last raise. 

Incentive increase

An incentive increase is similar to a merit increase, but the employer's main motivation is to retain an employee on the verge of leaving. This type of pay raise typically comes into play when a talented employee is considering moving to a different employer or embarking on a new career. The employer's offer for a pay raise is a counteroffer to prevent the employee's departure. 

With an incentive increase, the employer may offer a specific percentage increase or just the notion of a raise. In either case, the employee has leverage to negotiate the terms.

In-band adjustment

An in-band adjustment, also known as a salary band adjustment or base wage increase, is a wage revision based on market factors, with the term “band” referring to a pay range for a particular role. If we consider every profession a commodity, then it makes sense that certain professions will increase in value in response to real-world conditions. 

So to ensure that their employees continue to receive fair compensation for their status, some employers research standard salaries by profession and increase the base wage for roles that have grown more valuable. The base wages lie on a spectrum, so experienced employees are likely to earn more than new hires, but the whole salary band moves up.

Equity adjustment

An equity adjustment is a relatively rare type of salary revision based on the recognition that certain employees or groups aren't receiving compensation commensurate with their roles. Perhaps they've taken on more responsibilities but haven't moved up in pay grade, or they're earning considerably less than others in their profession of the same skill or experience level. 

The amount of pay increase with an equity adjustment may depend on individual, local, or national economic factors. For example, women often receive less wages than men for the same work. To close the pay gap, the employer might research the average earning potential for a particular role and, after accounting for tenure and work performance, bring an employee's salary closer to the higher threshold.

Standardized increase

A standardized increase is when an employer raises wages en masse for an entire team, department, or workforce. It, too, is a pretty rare type of pay raise, possibly taking place as an incentive or a reward for consistently good work performance. The amount will vary depending on the employer, the context, and the circumstances.

While standardized increases can be a boon for many employees, it may also be a demotivator for others. High performers, for example, may not appreciate receiving the same pay increase as those they feel contribute less to the organization.

If you've been at your job awhile and haven't received the raise you want, you might be considering seeking new employment. Should you elect to go that route, make sure to use the tools at your disposal to ease your job hunt. Start at CareerBuilder by creating a searchable profile so employers can contact you if you meet their criteria. When discussing your salary requirements, highlight your experience and skills to negotiate a rate you deserve.

More tips about salaries and incentives

Sometimes, employers must be reminded of how important salary increases are for retaining top talent. Often, it's up to you to ask for a raise and other key benefits.

A salary raise isn't the only way to increase your earnings. Discover some creative alternatives that help you financially in various ways.

If you've decided to take your services to a new employer, find out the key factors you should never overlook before signing the employment contract.