Asking for a pay rise – 9 February 2014

In all the years that I have been following public affairs, I don’t think I have ever before heard a Minister of Finance tell people that they deserved a pay rise. And yet last week, that is almost what happened: Bill English was quoted as saying that people were now entitled to think that their bosses would come to the party with pay rises. It must be election year.

Bill English is right, of course: many people have done it hard for years and with the economy in a growth phase, this year seems the time for a dividend for workers as well as business owners. While pay rises may not be massive nor for everyone, I do think that there are some who can look forward to higher incomes in the next few years.

One of the things that could easily be overlooked in Bill English’s comments was that those who could particularly look forward to pay rises were those with the right skills. I think it certain that incomes will not rise evenly across the board – that some people will do better than others. A lot better.

Technological change means that certain industries will be willing to pay more for good people while others will not. There will be businesses that are able to pay more, especially those that can use technology to improve productivity. However, there will be others (especially in some service industries) that will not be able, nor need, to pay better.

You do not want to be stuck in this second category: it will be skills (and business’s use of technology to improve productivity) that will let people enjoy the benefits of an improving economy.

Income is obviously important to everyone. First, we have to remember that to get ahead financially it is the surplus that we have that counts more than anything else. The savings rate (i.e. the amount that you can put to savings) will nearly always beat the investment rate (i.e. the rate of return that you can get from your investments). Developing a surplus that you can save and invest (or use to retire debt) is your first financial priority.

Second, there are two sides to a budget. To achieve a surplus, most people look solely at the expenditure side to see what they can cut out. However, more important for a surplus than reducing spending is the income side of the budget – increasing your income is usually a much more sustainable way to a good and increasing surplus.

So, assuming that you work in the right industry and that you seem to have the Minister’s blessing (maybe even his encouragement) how do you go about improving your income?

The first thing about getting a pay rise is that you probably have to ask for it. Many people feel a bit awkward about fronting up to the boss with hand extended as they ask for a bit more. Nevertheless, in many work places it is unlikely that you will be simply made a great offer out of the blue. You are probably going to have to take a deep breath and, like Oliver Twist, ask for more (remembering as you do that no less than the Minister of Finance said that such expectations were reasonable).

Second, arm yourself with the facts. You need to know what others are paying for the same work that you do and pitch yourself at that level. No employer wants to see a competent staff member leave to find that there is greater cost in finding and hiring a new one. In negotiations, facts win and if the fact is that others are paying more than you are getting, that will be recognised. Anyway, if your boss does not recognise that other employers are paying more for that work, why stay with one who is underpaying?

When you get a pay rise (or if you own a business and get increased profits) try to put all of the additional income that you can to savings or increase debt reduction. Beware spending creep: if you do not act to do something quite definite with the extra money, it will slip through the system fast enough. Sure there will be those who need every extra dollar to hold the budget together: this increase has been a long time coming. Nevertheless, an increase in income is a great opportunity to get ahead. It might be a good while until another Minister of Finance says you are entitled to expect a pay rise – better take advantage of it.

Martin Hawes is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at This article is of a general nature and is not personalised financial advice.