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The Economics of Job Hopping

In decades past, many employees spent their entire careers at the same company. Maybe they started in the mail room, the typing pool, or the factory floor. Over time they could expect to work their way up into a management position and retire out as a senior executive. Some employees could expect to do the same job for decades. Company loyalty was expected, incentivized, and rewarded.

Corporations had several sets of “golden handcuffs” to keep employees working for them for decades. Executives could expect lots of perks - like vacation time, executive lunch rooms, access to company vacation homes, company cars and no-questions-asked expense accounts. Workers often enjoyed company cafeterias, a Christmas bonus, and employee pricing on the goods their company made. Retirees could expect a defined-benefit pension for life in exchange for their work (where they would receive a paycheck and healthcare benefits throughout their retirement). Labor union contracts were structured to reward tenure and seniority and disincentivized people to change companies or locations. Even non-union workers often had a labor contract that spelled out their pay, benefits, and seniority. Consequently, job security was much higher in decades past.

Since the late 1970’s, pensions have all but gone extinct in favor of 401k or 403B plans or the less-common cash-balance pensions. Private sector unions have also shrunk dramatically across the US as right-to-work laws become common. As pensions faded away, access to healthcare became the remaining anchor. Employees had to worry about losing coverage due to any existing pre-conditions if they switched jobs. Now with the ACA (Obamacare), that anchor is gone too.

Also since the 1970’s, executive compensation has shifted in favor of “performance incentives” such as stock options or grants. The better the company performed for the shareholders, the better the CEO and the other executives did. Unfortunately, the focus often shifted to near-term performance of the stock to hit bonus targets or pump up the stock price. One of the more common tools to do this was to control costs, of which payroll is a major one. Layoffs became much more commonplace – often to the detriment of the long-term performance of the company. For example, cutting R&D or the salesforce to get a quick reduction in costs now could result in lower sales in the future. By that point, the CEO would have strapped on a golden parachute and it would no longer be their problem.

Many senior managers today grew up in the slow-and-steady climb up the corporate ladder. They often have the same expectation of loyalty from their employees that they experienced earlier in their career. The reality is that they often do not offer many compelling reasons to stay – especially as job security had become a thing of the past. Many employees can expect to be laid off at least once in their career. Having gone through the trauma of a layoff, employees can adopt a somewhat mercenary attitude, and with reason.

While longevity can be advantageous for an employee and look good on a resume, yet there are also excellent reasons to leave for another job and another company.

Let’s break it down:

Reasons to stay:

  • If you have a strong leadership team and you have a great manager, that is a big reason to stay. It can be a roll of the dice to leave to another team where you do not have either of those things.

  • You have ample opportunity to learn new skills and grow your career.

  • The company is growing and so is your earning potential.

  • You enjoy what you do. Your career does not always have to be about moving up and growing your paycheck. There are many other factors in what makes a great job.

If you have these elements in your job, we recommend you stay put.

Reasons to leave:

  • Bad leadership – either in the C-suite or with your direct boss. Most people know it when they see it.

  • You are going through the motions. No matter how great the company, if you are on autopilot in your work, it is time to go find new challenges.

  • Your career has stopped growing. At some point in your career, your career growth will be determined by the limitations of the company you work for, not you. That is reason enough to make a change.

  • You hate what you do. Even if you are paid obscenely well or the company is a great brand-name – if you simply hate your job, no amount of money will make it worthwhile.

If you are experiencing any of these - by all means start exploring your options.

Changing companies every few years can also have a significant long-term impact on your career growth and your earning potential. Here is a hypothetical example:

Steve and Terri were classmates at school, had the same major and GPA, and were hired by the same company when they graduated. Their starting salary was $45,000.

Their first company averages 3% pay raises per year. They also have pay bands, and pay increases are smaller over time as employees approach the limit of a pay band. Internal promotions typically result in a 7-10% pay increase.

After two years, Terri left to take a promotion at another company – and got a 12% pay raise. Steve stayed put.

Four years after they graduated, Steve was promoted and received a 7% pay raise. Terri took another promotion to a new company and was given a 12% pay raise. It was Terri’s first supervisory role.

Steve, ever the company man, was promoted internally again at year 10 and 18, receiving 7% and 10% raises. At year 10 he was promoted to be a supervisor and at year 18 to be a manager.

Terri, our mercenary, found another career opportunity and promotion at year 8 with a company willing to pay most of an executive MBA (almost $80k in tuition), along with a 12% pay raise. Four years later, MBA in hand, she made another move to a director-level role and a 20% bonus and was eligible for an annual bonus at a target 20% of her salary. She changed companies again, accepting a promotion again at year 18 to a vice president-level role, and along with a 20 % pay raise + 30% bonus target, she received stock options of around $40,000 as part of her compensation.

After twenty years in the industry, Steve and Terri were at the mid-point in their careers. Three promotions later, Steve was a manager making $82,474 a year. Terri, who was at her sixth company in twenty years was at $133,759 in salary, but also was receiving a bonus and long-term incentives in the form of stock options. So far in their careers, Terry had earned $679,725 than more than Steve.

Terry had also moved into the executive ranks, and had earned an MBA paid for by an employer – this would make her increasingly competitive for future roles. Assuming they each will work at least another twenty years; the gap will continue to increase over time. Terry is most likely at a point on the corporate ladder where long term incentives become part of her compensation. Earning stock options or stock shares can significantly increase her total compensation.

While the data is realistic, it does not consider some other variables: This exercise was assuming voluntary career moves into better positions. There is no guarantee that salaries will always go up. Like we discussed earlier, it is not only possible but likely that professionals these days will experience a layoff at least once in their career.

This hypothetical exercise also ignores the fact that compensation does not correlate to job satisfaction or overall happiness. Compensation is not the best benchmark for success. Steve might have loved every day of his job, and Terri might have been miserable.

That said, we strongly encourage professionals to take more control and ownership of their careers.

Corporations will be happy to have you in a role if it suits them, not necessarily if it suits your career. If your services no longer become necessary, they will ask you to leave, no matter how long or how loyal your service. That may sound cynical, but we have had thousands of conversations with professionals who were surprised to find out they did not have a chair when the music stopped.

If you are ready for a promotion or greater responsibility and do not have the opportunity at your current employer, consider shopping around. You should target a 10-15% increase in salary (at a minimum) as well as negotiating for the same or better level of paid time off you currently enjoy. If you relocate, you must also factor in cost of living. Moving to a higher cost of living or higher tax state can easily wipe out any pay raises.

If you are ready to explore new job opportunities, we would like to get to know you and your career goals. We help many professionals each year take that next step in their careers. Let us know how we can help. Talking to us just gets you on the radar for future opportunities – it is not a commitment to quit your job (until a better one comes along)

If you are not sure what you want to do next in your career, we have professional career coaches who can walk you through the process and help you find the right path forward. The time and effort can reap dividends for the rest of your career.

The Rivet Group is a Veteran-owned Executive Search, Consulting, and Coaching firm based in Charlotte, North Carolina.

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