How to Determine Salary Increases

When you receive a raise, it is very important to calculate the salary increase as a percent of your old salary. Doing so makes it easier to compare your salary increase to the rate of inflation and to salary increases in comparable jobs. Though relatively straightforward, many workers do not calculate their percent salary increases and are happy to accept the raise they are offered. This approach is risky because you may not realize that your employer is paying you less than you would receive at another firm.

Step 1

Compute the dollar amount of your salary increase by subtracting your old salary from your new salary. For example, if you are currently making $80,000 and your new salary will be $83,000, the dollar amount of the increase is $83,000 - $80,000 = $3,000.

Step 2

Divide the dollar amount of the salary increase by your old salary to calculate the percent increase. In the example above, the percent salary increase is $3,000/$80,000 = 3.8 percent.

Step 3

Benchmark your percent salary increase to inflation as measured by the Consumer Price Index (see Resources). You might be happy with a $3,000 raise, but if inflation for the current year is 5 percent, you will actually be worse off in terms of your real purchasing power, even after the salary increase.

Step 4

Research the salary increases received by your colleagues at competitive firms. A colleague in a similar job at a different firm might be paid $85,000 this year as compared to your $83,000. You may believe that you deserve a higher salary, but if you know that your friend's old salary was $84,000, you can see that she received a smaller salary increase than you did: $1,000/$84,000 = 1.2 percent compared to your increase of 3.8 percent.

Tip

You can locate data on inflation on the U.S. Bureau of Labor Statistics website (see Resources).

If you are paid by the hour, subtract your old hourly rate from your new hourly rate and multiply the result by the hours worked each year to compute your pay increase in dollars. For example, suppose you make $7 per hour working 40 hours per week for 48 weeks per year. Further suppose that your wage will increase to $9 per hour and that you expect to work the same number of hours. The dollar amount of your pay increase equals ($9 - $7) x 40 x 48 = $3,840. Your pay increase as a percent of your old wage equals $3,840/($9 x 40 x 48) = 22 percent.

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