Tag Archives: career salaries

working for a salary - a bad deal?

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Office Politics: A Rise to the Top

Chances are you’ll never be rich as an employee. If you work for an employer, chances are that you get paid a fixed amount and it is increased every year. Chances are also good that you are being paid in money, which is subject to inflation. The result is probably that your real wages are probably stagnant. In fact, in the most recent “boom” (2000-2007) the median wage in America actually declined (and before that it had been stagnant for 20 years). The real estate boom was a false one, not based on increased wealth or productivity, but on leverage; everyone borrowed money to make money. But unless you worked on Wall Street in a revenue-producing position (investment banker, etc.) it’s doubtful you saw an increase in your real wages.

I calculated my own raises year over year during the time I was still receiving a salary. My best year was a 62% raise, and my worst was a three-year tie at 4%. The 62% raise was an exception to the rule. I left a stable job in a small Southern city, Memphis, and moved to the gargantuan metropolis of Moscow and received, in effect, hazard pay. The actual raise in real terms was even more, because I didn’t have to pay US taxes on it. It was early in my career and my wages increased thanks more to changes in location than anything. I entered a field as it boomed. I moved to Russia as it boomed. I moved to New York it boomed. Then I switched to consulting

Over the last 5 years I worked as a salaried employee, my average annual raise was 5% - so my salary rose 27% during those five years. For those 5 years, the inflation rate was approximately 18% (inflationdata.com). Therefore, my real purchasing power increased approximately 9% over 5 years. This is not tremendous growth, despite the fact that I already had a six-figure salary – so the numbers looked good even if in reality they weren’t that impressive.

If you had an investment that had returned no more than 9% over five years you would probably dump it. Isn’t your career an investment of sorts? I am a consultant and I (usually) work for an hourly rate determined in a contract signed with the client at the beginning of a project. My rate fluctuates due to several factors: demand, the overall economy and even my own interests (for example, I hurt my rate by tending to refuse jobs with business travel involved). But I have a lot more control over that rate than I ever did over my salary.

I was a senior manager when I snuck out of the workforce and into consulting, so if I went back, I would probably go back in as a senior-level manager or a very junior executive. I know from talking to various that I make significantly more as a consultant than salaried people at a similar stage in their career. Granted, I have higher expenses (health care, insurance, etc.) but on a net basis I still come out ahead, and considering salaried people don’t get paid for overtime I get paid a lot more if you compared hourly salaries. The difference is when you hit the executive level, where there has been no wage stagnation in the last couple of decades. Between 1989 and 2007 (latest data I could find) executive salaries rose almost 107% while overall wages remained flat.

So while you might eventually hit the big time executive salaries, chances are good that you won’t, and your raises will likely not top 4%. Realistically, given the economy, raises in general seem unlikely – I’ve seen a lot of data indicating that pay cuts are becoming common. Another consideration is time: to make it as a junior executive requires pulling long hours trying to prove your worth to the organization and putting in face time. But if you work in a salaried job and love it and feel you have what it takes to make it to the executive level – go for it.

But if you are expecting to become rich as a salaried non-executive employee, sit down and calculate your raises over the last five years. Then honestly assess your chances of becoming an executive at what you do, because that’s the only way to become wealthy as a salaried person. I think you’ll find that while being employed can maintain your standard of living, it’s unlikely to make you wildly rich. That may be your comfort zone – not everyone wants to go into business for themselves. You may like your job, and if so, good for you. But unless you’re planning to put in the effort and hours and politicking to become an executive, chances are good your wages won’t ever make you wealthy.

AttributionPhoto credit: Some rights reserved by Alex E. Proimos

average career salaries

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If I could travel back in time and give myself a little bit of career advice, I’d spend some time talking to young Steve about earnings over a lifetime of work, or average career salaries. The median elementary school teacher salary in the US, for example, makes about $51,000 a year. The median attorney salary is closer to $91,000. The median auditor is closer to $58,000. Here is the difference, though: a median is just a median, meaning that half of the people with that profession make more than that figure, and half make less.

The school teacher population is going to be made up of a lot of teachers making between $40,000 and $51,000 a year – maybe younger teachers, or lower-cost-of-living areas. The other half might make $51,000 to $70,000 or so. There might be a few outliers in expensive areas – New York or San Francisco – but there will not be teachers making $450,000 a year. The system is not designed to allow anyone to escape into a significantly higher pay bracket (and we’re talking about teachers, not teachers who become administrators – that’s a different job).

That’s a real difference from some other professions. Take the Big 4 firms – Ernst & Young, Deloitte, PricewaterhouseCoopers and KPMG. An auditor in a Big 4 firm probably makes less than a schoolteacher to begin with (particularly on an hourly basis). These lower-level auditors make up the majority of the employees of the firm. For every partner, there might be five managers, each of whom might oversee ten staff (for example). So 6 of every 56 people are managers or above, and only 1 in 56 are partners (I made up those ratios, but based on my experience that’s a fair guess). So the median’s lowered to account for the huge number of lower-level staff.

But in an environment like that, the chance for exceptional rewards for exceptional performance exists. Now, if you’ve worked in a corporate environment or read my last post on stupidification, you know that exceptional performance is not always the requirement for getting rewarded. Sometimes it’s being the CFO’s nephew. But as compared to the teachers above, there is a chance that earnings can grow far, far beyond their starting levels. A teacher can’t, even if they win an award as the greatest teacher in their state. An outstanding diplomat can’t break out of the government pay grades.

What all of this means is that not only do you have to consider the starting salary for your career, but you have to look at what the possibilities for exceptional earnings are. I know earnings are not everything. Many people can also fall into the trap of believing that they will be the exceptional performer, but in a bottom-heavy organization far more people will quit or be fired than will make partner or executive.

So consider average career earnings, and then think about whether you are willing to be the exceptional performer. If you aren’t, maybe the average career earnings aren’t that critical. If you don’t plan to excel, a career where everyone can be expected to be compensated within a narrow range is fine. If you do plan to excel, make sure it’s in a profession where that excellence might result in reward. That’s not to denigrate teaching or praise public accounting. I realized early on in my career in public accounting I wouldn’t be a partner; I didn’t have the drive to be an exceptional auditor. So I joined the lower level of the median salaries and might have been happier – and done better over the course of my first 10-15 years of working – had I done a job search and chosen a different career path, with a narrower bank of average career salaries.

Note: I haven’t read Seth Godin’s Linchpin: Are You Indispensable? yet, but I gather that’s what that book is all about – the idea of making yourself into an “artist,” which Godin believes makes you deeply committed to becoming indispensible to your organization. Maybe I should read it…