This isn’t quite how it works. Generally in medium to large businesses - meaning at least a billion a year in annual revenue - oftentimes how it works is a given business unit (BU) will be given a budget. This is usually based on analysis and projections based on the previous fiscal years as well as projections on growth goals.
The VP of that BU will need to spread that budget across their unit as best they can. This will include everything from promotions to new hires. Keep in mind that it could cost a business $160 an hour to hire one full time employee who only makes $50 an hour, all things depending. In many roles, it can take a year or more to get a new hire up to speed in their new role. At $160 an hour, that’s $332,800 against your budget and that first year will not recoup 100% of the potential output of that new hire who will likely not be putting out their fullest until around a year or more, so you’re looking at what more or less accounts to over a quarter of a million just to train a new employee for one year so they can start putting out the same level of work as someone of their level should be.
Then consider if you’re an international company. The business I work for for example is in 60 different countries. All of those countries have different regulatory practices that require a lot out of the HR business unit(s). Some countries have regulatory requirements that force the business to utilize software that can account for those regulations that cost millions annually and aren’t even very good, but there isn’t a good alternative, so it’s either pay that or fall out of compliance, which is not really a viable strategy.
If you have 100 employees in your unit and you want to give them all a 3% annual raise but you’re not given a larger budget unless you grow that side of the business (in other words, you self fund), then where are you getting that revenue stream from?
In many cases you have to set up projects yourself from the top-down, such as requesting from your directors that they begin brainstorming ways to generate revenue. This could be through efficiencies, for example. If you were a director in HR for example, maybe you want to take a look at your team’s processes and see what could be automated. That project alone requires expertise, and those kinds of analysts aren’t cheap. Then you need engineers to perform the automation, which are also not cheap, and you need a surefire return on investment there because the end goal might be to free up 25% of your team’s labor through automation of their current processes, but you may not see a return on investment for 2 years, then by the third year the return isn’t even enough to hire an additional 3 people, let alone give an entire team of 100 a 3% raise.
So you might argue then, “well why can’t the business just give that BU a larger budget?” And there are a few answers. I won’t list them all here, but some examples would be is there something your team could be doing to increase their value to warrant taking budget from elsewhere to funnel into your team? Or every year is it just expected that 3% of the budget go into the employees without an ounce of those employees providing any additional value? To seriously simplify, if the business makes $100 and they pay $50 to their employees and $30 to their shareholders and $20 is reinvested in the company, why should the business pay the employees 60%? HOW do they pay them 60%? They have to take it from the shareholders or the reinvestment, and take too much from the reinvestment and your competition will put you out of business, and take too much from the shareholders and they will invest with your competitors - see the problem?
Many employees don’t understand that they have to increase their perceived value to warrant more, and few do.
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