Salary Increase 2019: Bad, but Good

That’s a strange way to describe your salary increase for 2019!

Yup it is. My salary increase this year wasn’t that high. But a company wide increase of secondary benefits plus lower income taxes made my net income rise by about 100 euros.

Salary Increase

As said, it wasn’t good. I mean really, not good. I got a measly 1% raise on my gross monthly salary.

When I switched jobs in March 2018, I made quite a jump. My gross monthly income went up by about 17%, but that’s after the increase I already got at my previous employee. Compared to my 2017 salary it went up by about 26%.

So there’s nothing to complain there. And the company knows that. They also know I won’t jump ship working there only 10 months. So that’s why they can get away with giving me just 1%.

Of course, the optimiser in my didn’t agree. I told my manager. He said this is the best he could do. Even though I hit all my personal targets and was performing above expectations.

Negotiation Outcome

So I asked what this would mean, I slipped out that I’m not too happy with this and that I’d rather not have the same conversation a year from now. An unhappy B is open to walking away. But really that would be a shame, because I honestly like my job. I think he understood the message, and said he would come back on this. And he did, the week after.

We discussed my promotion track (I’m on track to be promoted by the end of this year) and he told me to close the gap between the 1% and my expectations they will cut the promotion track in two parts.

If I hit all targets at the end of Q2 this year, I will get half of the salary increase that goes with the promotion. Then the actual promotion plus full compensation package will come in Jan 2020. Of course he couldn’t promise anything, but this is what we’re aiming for.

I do trust them to actually deliver on this. That’s the luxury I have of being in a very in-demand industry right now.

Company Retirement Contributions

In November 2018 the company announced that they would start paying 37.5% of our retirement contributions. Currently we pay 100%, so with them paying slightly over one third now that’s an indirect increase in my net salary.

I did the math (it gets quite complicated) and the effect to my net salary is about the same as another 1.3% increase in gross income. That makes the total compensation increase 2.3% (which is how my manager tried to sell the 1% to me).

Obviously his logic there is flawed. The 1.3% gross increase coming from the retirement contributions shouldn’t be counted towards my personal salary increase.

The reason is simple. In every career there’s such thing as the salary curve. It’s simply a visualisation of salary by experience. You can visualise this by plotting your salary (on the y-axis) to the years of work experience (on the x-axis). The result should be a line that is increasing really fast on the left side of the curve (your salary increase much early in your career) and then tapers off to the right (the increases keep getting smaller and smaller).

The 1% personal salary increase is what’s moving me to the right of the curve. The 1.3% I gain from the retirement contributions by the company is the curve moving upwards for everyone. So no, the secondary benefits have nothing to do with my personal compensation for making the company a lot of money.

Income Taxes are Lowered

This is the third reason my net salary has gone up. The Dutch government finally is making our super-duper progressive tax system just a little bit less progressive.

They do so by lowering the taxes on income for practically every income level (which I very much applaud for!). Then they increase taxes on consumption, primarily by raising the VAT on food and drinks.

The increase of food and drink prices is negligible if you’re price conscious like me. It shows again that living somewhat frugally is a blessing.

So my income (which I try to maximise) is getting taxed less, while consumption (which I try to minimise lower) is getting taxed more. This should be a net positive to me.

Conclusion on Salary Increase

So my salary increase this year is bad, from a personal development point of view. But in the end it’s good, since my net income rises by 100 euros per month which is halfway of the boundary I expected.

The effect on my savings rate should be about 2% increase, calculated from my 2018 salary and a 40% savings rate, to my 2019 salary and constant costs (full raise going into my investments).

Plus, I plan to earn a couple thousand through my various side hustles this year.

How does your salary develop this year?