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Realistically it’s hard to peg a salary to “market rate,” particularly when one has gotten merit-based raises on top of that. I think all employees should get a cost-of-living adjustment, tagged to inflation. So if inflation is 3% in a year, everyone gets 3% right off the bat.

I’m torn in that I think the flip-side makes perfect sense. If there is 1% deflation, why shouldn’t employees’ wages be cut by 1% across the board? At the same time I feel that’s the quickest way to see half your development team leave, even though we’re talking about less than the cost of a nice dinner each month.

In an environment where the market crashes and it dramatically affects revenue for a business, everything has to be on the table, from layoffs to hiring and raise freezes to voluntary cuts in pay (often to save the job). If you make $100k a year at “market rate” and there’s a huge crash, and you’re given the opportunity to cut your own pay to $80k or try to get a job for $60-90k, what do you do? It’s a tough call for anyone.

If there was a 1% decline, would it work to not adjust pay but record this negative inflation so that next year if it's +2% then the employees only get +1% raises? If the economy continues to go down then this won't work, but it would handle a short bump fairly without actually reducing anyone's pay. Would people still leave?

Why is it expected to get inflation-based increases with deflation-based reductions?

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