Does sticking with the same firm actually hurt your financial potential?
If you spend two years or less at a series of jobs, is that a problem? Shouldn’t your resume signal loyalty instead of transience?
Well, maybe it isn’t a problem. Maybe you are doing yourself a financial favor instead, especially in this decade. Maybe the conventional wisdom about getting ahead is flawed. The era of the organization man/woman is long gone, and how many people do you know who have spent a decade or longer working for one employer?
Remember 5% annual raises? You don’t see them much anymore. In fact, when the respected HR firm Buck Consultants released its 2013 employee compensation forecast, it projected that “the median salary increase in 2013 will be 3%” and that “the new normal for salary increases will settle at this 3% level.”1
Chances are, your most recent raise was on the order of 2-3%. While you are keeping up with consumer prices at that rate, you may not be making up for any financial steps you took backward as a result of the recession. Even the all-stars at your firm may be getting just a 5-6% yearly raise.
Why does jumping ship so often mean a jump in pay? As a senior hiring manager who has worked with Intuit and other Fortune 500 firms in the San Francisco Bay Area recently commented to Forbes, “I would often see resumes that only had a few years at each company. I found that the people who had switched companies usually commanded a higher salary.”2
“The problem with staying at a company forever,” she reflected, “is [that] you start with a base salary and usually annual raises are based on a percentage of your current salary. There is often a limit to how high your manager can bump you up … however, if you move to another company, you start fresh and can usually command a higher base salary to hire you.”2
Why is wage growth lagging in the recovery? Look at inflation. It is still in the 2% range. If consumer prices were rising 5% a year, things might be different. Because they aren’t, employers face less pressure to bump up salaries. Last year, Towers Watson surveyed 900+ mid-size and large employers and learned that a 3% raise at these firms would be par for the course in 2014. It was also the norm in 2013 and 2012.2,3
Since inflation is at roughly 2% right now, a 3% raise amounts to only a 1% gain versus the cost of living. In the above-mentioned Forbes article, Forbes contributor Cameron Keng notes that “staying employed at the same company for over two years on average is going to make you earn less over your lifetime by about 50% or more.”2
How does he reach this conclusion? He plots out a 10-year graph in which an employee starts at a salary of $100,000, assuming 3% annual raises and a “conservative” 10% increase in pay per job change. After 10 years at one employer and a decade of 3% raises, the extreme loyalist is earning $130,000. In contrast, a more opportunistic worker who changes jobs four times and works for five employers in those ten years will be earning about $170,000 a decade on.2
If you want change, when should you make your move? U.S. News & World Report recently addressed that question in its Jobs in 2020 web special. It cited several circumstances that might call for a job change: you’ve worked for the same company for 10 years or longer, your skill set is underappreciated, you find yourself battling your co-workers, or your goals differ from the company’s goals. If you’ve just come back from a vacation or wrapped up a major project, it might be a good time to make a change. If a fiscal year is just ending for your employer, this might be another prime time.4
On the other hand, there are bad times to change jobs, and USN&WR also noted some of those. If you’re overworked, having interpersonal issues at the office or just bored, you can overreact; restructuring your workday or work tasks may offer a solution. If a major life event, long vacation or house hunt is just ahead, a job change may not be ideal or smart. It may not be wise if you sense that the economy (or your industry) is in line for a downturn, or if you’ve been at your job for less than a year. Lastly, a job search that coincides with the holiday season may be more prolonged than you anticipate; HR officers and managers may be more available (and less stressed) when mid-January rolls around.4
If you love what you do and are good at it, you may see no reason to change jobs. Alternately, you might reason that you could excel and love your work even more in a new environment. Consider the above-mentioned factors (and others) if you are looking for greener grass.
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1 – tlnt.com/2012/11/08/remember-those-3-salary-increases-now-theyre-the-new-normal/ [11/8/12]
2 – forbes.com/sites/cameronkeng/2014/06/22/employees-that-stay-in-companies-longer-than-2-years-get-paid-50-less/2/ [6/22/14]
3 – usatoday.com/story/money/personalfinance/2013/09/18/how-much-of-a-pay-raise-can-you-expect-in-2014/2832791/ [9/18/13]
4 – money.usnews.com/money/careers/slideshows/the-10-best-times-to-switch-jobs [3/12/14]
5 – money.usnews.com/money/careers/slideshows/the-10-worst-times-to-switch-jobs [9/18/13]