Tag Archives: salary

working for a salary - a bad deal?

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

The Perfect Salary for Happiness

Maybe you’ve already heard. But for those who need a recap, a recent Wall Street Journal article has brought the nations’ attention to some buzz-generating findings from a Gallup survey about the economy. Princeton economist Angus Deaton and psychologist Daniel Kahneman have interpreted Americans’ responses to the survey and have found that there is a threshold, above which, money no longer contributes to “day-to-day contentment.”

The magic number: yearly earnings of $75,000.

That’s right. The emotional well-being of one who makes less than $75,000 a year rises with all gains in income, but for those who earn more, there is no change. Thus, this survey suggests there is a ceiling at which money no longer adds to daily happiness. However, there was no plateau found with regards to what the researchers called “overall life assessment,” or “broader satisfaction with one’s place in the world.” It’s still apparently true that the more money one earns, the better they feel about life in general.

What it says about us

This income plateau concept makes for some pretty interesting social commentary. Essentially, the survey seems to indicate that money, after a certain point, matters only in the larger scheme of things. Once one reaches a certain point where bills, rent, and mouths to feed are no longer an issue, then money does not add or subtract to or from one’s daily contentment.

But doesn’t that fly in face of our consumer mindset? What about the prevalent (predominant) culture of the impulse buy? The world in which weekends are spent perusing dinette sets at Pottery Barn or trying on clothes at Macy’s rather than spending time with our loved ones or going for a walk on a sunny day. Advertisements tell us to buy, Buy, BUY to look better, fit in, and feel better about ourselves. So logically if you have more money you can buy more things and feel more of that instantaneous buyer’s rush, you’ll be happier in the short-term, correct?

Well, apparently, wrong. The study reveals what the Don Drapers of the world don’t want you to know. Buying things can’t ultimately make you feel better. It may provide a quick jolt of pleasure in owning something new, but that fleeting feeling barely registers a blip on that day’s happy radar.

What you can’t put a price tag on

In this humble writer’s opinion, day to day happiness is the result of living comfortably, of taking care of the things necessary to living for one’s self and one’s loved ones and taking care of them well, such as living in a decent enough house in a safe neighborhood, without too much worry for the future. Luxuries like fancy clothes, sports cars, and McMansions - on a daily basis, do not matter so much.

But take some time and reflect on your own priorities. What matters more - happiness in the moment or happiness in the larger scheme of things? Do the findings of Deaton and Kahneman illustrate that money does not buy happiness? Do you live like it does?

Joseph Gustav enjoys musing on topics related to the economy and employment as a guest blogger for Pounding the Pavement and Guide to Career Education.

should I take a pay cut?

While discussing consulting rates with two companies recently, I was forced to face an interesting question - when times are bad should I be willing to accept reduced rates? Should people who work for salaries be willing to accept pay cuts for new jobs - or even worse, pay cuts in their current job? Could you justify making 75% (or less) of what you once made, just to keep making money? Or is it better to grit your teeth and keep searching for - at least - pay equal to your previous position?

This question first of all depends on whether you’re in a position to weather a long downturn. If you’re living paycheck-to-paycheck, this question is answered with a resounding “yes, take the pay cut, just keep money coming in.” If you have some money set aside, you may be able to hold out longer for a better rate.

But what about taking that lower rate when you move on to the next job? Do you think the excuse that “it was just a filler” will work? Do you think the next company will bump you back up? When you’re working as a consultant or freelancer that might be the case - rates do fluctuate a bit. If you’re working for a salary, though, it’s going to be harder to justify returning to the salary you had before you took a cut.

And what about titles, or responsibilities? Does it appeal to you to work your way back up the line? For most people it is not desirable if avoidable. Nobody wants to be the 40-year old supervised by a 23-year old.

It’s not always easy. I know plenty of people who, for one reason or another, have had to make the decision to scale back in their careers, either salary-wise or responsibility-wise (or both). People do it out of fear or desperation or sometimes simply out of a desire to work, no matter what the level.

Many people may see this as an analytical question: should you accept an X% reduction in pay during economic hard times? I think this is a question that can only be answered by the individual in each case - finding a balance between pride and the need to work. Can you be effective knowing you’re working as hard (or harder) for less? Can you make do? In the end, it’s not something a career blog or a coach can help you with; you need to know whether you can handle the reduction, and live with the consequences.