An equity raise is a permanent increase to an employee's base salary, granted under specific conditions. These conditions typically involve increased responsibilities that don't warrant a full job reclassification, or when an employee's salary significantly lags behind comparable positions within the company or the local job market.
Here's a more detailed breakdown:
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Purpose: To address salary discrepancies or recognize expanded job duties without changing the formal job title or description.
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Conditions: Equity raises are generally considered when:
- An employee has taken on significantly more responsibilities.
- An employee's salary is substantially lower than peers in similar roles internally.
- An employee's salary is substantially lower than the market rate for similar roles in the local area.
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Difference from other raises: Unlike merit-based or cost-of-living raises, an equity raise specifically targets inequities in pay based on internal comparisons or market data. It's not necessarily tied to performance reviews or inflation.
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Alternatives: Sometimes, instead of an equity raise, a job reclassification or promotion might be more appropriate, especially if the employee's duties have fundamentally changed.
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Example: Imagine a software engineer who originally focused on front-end development but now also leads a team and contributes to back-end architecture. If their current salary doesn't reflect this expanded role and leadership responsibility compared to other team leads or market data, an equity raise might be warranted.
Essentially, an equity raise is a strategic adjustment to compensation to ensure fairness and competitiveness, keeping valuable employees satisfied and aligned with their contributions.
