Caller Defends A 2% Raise For His Employees. Dave Ramsey Says It’s ‘Insulting’ With Inflation At 9%

A Nebraska company offers its employees a 2% annual cost-of-living raise, with the potential for another 3% based on performance. But the approach is creating tension, as workers view anything less than the full 3% as a sign they’re underperforming or undervalued.

That’s the issue that came up during last year’s call to Dave Ramsey‘s “EntreLeadership” podcast. The caller, Blake, is a controller at a physical security company with about 100 employees. He wanted advice on how to structure raises more effectively.

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Ramsey Says Market Pay Matters More Than Percentages

“We currently offer about a 2% cost-of-living adjustment each year for every employee,” Blake told Ramsey. But he admitted, “When an employee gets less than 3%, they take it as they aren’t doing a good job or we don’t value their contributions.”

Ramsey told him what they do at his company, Ramsey Solutions. “We don’t do any cost-of-living. We do marketplace adjustment,” he said, making it clear that basing raises on inflation alone is a flawed approach. “A 2% raise in a 9% inflation economy is insulting.”

Instead, Ramsey’s company looks at what the market is paying for each role in their region and uses that data to guide compensation decisions. “You get raises because the position that you are in now pays more than it used to pay,” he said. “That’s a marketplace adjustment.”

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No Fixed Percentages, Just Real Numbers

Ramsey also advised against using fixed merit raise percentages. “We do not do a percentage merit,” he said. “That way, I don’t have any comparison issues.”

In his company, if someone is outperforming expectations, they get a raise that reflects that directly in dollars. “It looks like you’re $5,000 away from mid-range, but you’re killing it, so we’re going to bump you $7,000,” he explained. No math games, no guesswork, just a raise that makes sense. “It’s a little more vague than saying, ‘Well, you were a 3% merit, and you were a 2% merit.’”

 He also touched on a common problem in administrative roles, where performance is harder to measure. “It’s more difficult for me emotionally to figure out how to build those comp structures,” Ramsey admitted, though he acknowledged the value these employees bring.

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Accountability, Not Surprises

One reason they conduct annual reviews now is to make sure no one gets overlooked. “We accidentally forgot to give people raises,” Ramsey said. Some employees even quit over it. Now, performance discussions happen regularly, not just once a year, so no one is surprised by their review.