Finance expert Dave Ramsey firmly shuts down boss who complained employees need to be grateful for 2% raise

A manager called into Dave Ramsey's "EntreLeadership" podcast with what he thought was a typical problem: employees complaining about their raises. But instead of sympathy, he got a blunt reminder of how percentage-based systems often miss the mark. Blake, a controller at a physical security company in Lincoln, Nebraska, explained that his firm gives a 2% cost-of-living raise each year, with up to 3% more based on merit. The problem was that there were no clear rules for how those merit raises were determined. "We really haven't clearly identified or defined what a 1, 2, or 3% merit increase would look like," Blake admitted.

That uncertainty left employees convinced that unless they received the full 3%, they were being told they weren't performing well. Studies show why this approach falls flat. A 2024 WTW survey found that most US employers budgeted average pay increases of about 4% to 4.5%, still short of inflation in recent years. When raises fail to match expectations or the market, frustration builds quickly, and that is one of the top reasons employees leave their jobs.

Ramsey responded, "We don't do any cost-of-living. We do marketplace adjustment." Rather than tying raises to inflation or fixed percentages, he explained that his team looks at what the market pays for each role and adjusts accordingly. "You don't get a cost-of-living raise just because the cost of living went up," he said, "You get raises because the position that you are in now pays more than it used to pay." He added that his company makes the process transparent. "You're at the bottom end of that range and you're doing a great job, so we're going to move you up to the mid-range," he said. By showing employees the actual market data, Ramsey said he avoids the resentment that percentage systems can create.

Then he referred to the inflation in recent years, stating, "A 2% raise in a 9% inflation economy is insulting." Ramsey pointed out that inflation isn't stable and shouldn't be the basis for raises. "We've had no inflation. We've had a contraction, meaning a recession. We haven't tried to monitor all that. It's reflected indirectly in what it costs to hire someone for a position," he said. Instead of merit percentages, Ramsey said his team ties raises to the value of roles directly. "That way, I don't have any comparison issues. It's just, this is what this position is worth, and you're exceeding what it's worth by doing these things," he said.

Blake said the frustration was concentrated among 25 to 30 employees, and Ramsey wasn't surprised. "That 25 to 30 is probably where all your problems are happening," he said. He also acknowledged the challenge of setting pay for support staff whose work isn't tied directly to revenue. "I'm so straight commission-oriented, I'd put the freaking receptionist on straight commission if I could figure out a way to structure it," he joked. Ramsey admitted his own company had once fallen short, and to fix that, they now stick to annual reviews, but he stressed that feedback isn't limited to once a year. "We also do regular accountability rhythms with folks. That way, no one is surprised at review time," he said. In the end, Ramsey underlined that poor performance isn't a compensation issue. "We're not really interested in keeping them," he said, "So it's not really a money thing anymore."

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