Why Nadella Was Right: Don’t Ask for a Raise

Microsoft CEO Satya Nadella may have phrased his recent remarks about women and pay raises a little inelegantly. But what he said was right: Don’t ask for a raise.

Where Nadella put his foot in his mouth is that he singled out women. In fact, neither gender should ask for a raise. Both men and women should earn their way to a raise.

Earning a raise based on performance is a much more positive — and effective way — of procuring a salary increase. Employees should concentrate on their own job performance and then share with their bosses what they have accomplished. This approach ensures you lead with your value, not a demand. It’s also an opportunity to get feedback and learn if what you are doing is working or what’s required for further success. If the boss doesn’t appreciate what you’ve done, ask him or her what’s lacking.

There is a backlash to directly confronting your boss on salary issues that most people don't realize. The boss may think you are worth X, while you think you are worth more. The boss may also feel she deserves a raise and may then resent you asking for one when she herself hasn’t received a raise. This may sound touchy-feely or akin to Nadella’s “good karma,” but the truth is that salary issues affect relationships. By focusing on performance, not salary, you encourage the boss to reach her own conclusion that you merit a raise. You demonstrate, not demand.

Of course, with some bosses, it will be a futile attempt. If you strike out, you’ll have to just make the best of the situation until you find another job.

Believe it or not, because of the way raises are distributed, they are often punishing rather than reinforcing. In a classic vignette from Robert Mager’s film “Who Did What To Whom,” a boss announces to an employee, “and I was able to get you a 5 percent raise.” The woman sitting in front of the desk slams a note pad on the desk and says angrily as she walks out of the office, “You call that a raise?” Although very few employees respond outwardly in that manner, I am sure they would like to do so because over the years, I have been told as much by many people. Often, the difference between raises to the top performers and the next category is only one or two percentage points. You call that a raise? Many don’t.

Employees would not have to be proactive in matters of pay if organizations adoptedan effective pay-for-performance system. Here are seven recommendations for organizations to use in designing an effective system:

  1. Replace subjective performance measures with objective performance measures. The traditional performance review or appraisal is typically based upon a supervisor’s perceptions of an employee's performance rather than objective results. These perceptions are influenced by many non-performance factors, including employee likeability, employee busyness, personal prejudices, ease of management, conformance, previous mistakes or successes and so on. Paying someone for being cooperative fails to specify or direct the employee to produce true business results, but if the way the person relates to others is important (and it always is), those behaviors need to be pinpointed and tracked as well.
  2. Replace bonuses with pay for performance. Bonuses are after-the-fact discretionary payments to employees for a job well done. Though there is nothing wrong with this practice, it will not directly improve or sustain employee performance because it is far removed from behaviors that led to receiving such a bonus.
  3. Replace annual performance measurement with more frequent measurement. Requiring supervisors to rate an employee's past year's performance is like asking them to judge performance in the absence of any real data and then to  somehow average employee performance over 250 workdays. Performance measurement should be based on objective data, and feedback should be provided to employees at least monthly. Ongoing conversations are important
  4. Replace large-group measures with small-team and personal performance measures. Profit-sharing and gain-sharing plans are based on large-group results. Paying employees on large-group results is behaviorally unsound for two reasons. First, the employee typically has limited or no control over the outcome. Large-group results fail to specify what the individual employee should do or did do. Second, the payment is based on the performances of hundreds or thousands of employees. This makes the payment uncertain and unrelated to the individual's personal effort. Individual is best but if team performance is all that is possible, the smaller the team, the better.
  5. Replace broad financial measures with actionable measures. No employee should be evaluated or paid for results he or she has little or no impact upon. Pay-for-performance plans that award payments to employees based upon broad financial results such as return on equity, return on assets, return to stockholders and the like are paying for organizational performance — not employee performance. When designing a pay-for-performance plan, always ask, "How can the employee directly improve this measure's results through a change in personal behavior?"
  6. Replace unbalanced performance-measurement plans with balanced plans. One-dimensional performance-pay plans often yield unintended results. For example, sales commissions based on revenue generation may cause salespeople to sell things to people who can't pay, make promises that production can't keep, and discount prices producing minimal margins. Once a performance measure is defined, the next question should be, “What adverse impact could a total employee focus on this result produce?” This will allow for changes in the compensation plan to avoid adverse impact on others and on other valuable outcomes.
  7. Replace discretionary pay-for-performance plans with rule-driven plans. A successful pay-for-performance program must be as reliable and predictable as the traditional wage and salary program. A common mistake is to constantly change the program parameters and requirements. Employees will not invest time and effort in a program in which the measures, criteria and pay potential change frequently and unpredictably.

While the above suggestions will ensure that an organization has an established, successful and effective system for recognizing and rewarding employee performance, many will not. In the absence of such a system, the next time you decide to ask for a raise, regardless of your gender, think first about how you can perform your way to an increase. Don’t put your faith in the system but in your own abilities.

Download this free book excerpt from “Sin of Wages” by William Abernathy to learn more about finding our way out of our current pay system.