Leaving Your Job May Be the Best Way to Earn the Salary You Deserve Did you know people who stay in their jobs more than two years tend to earn 50% less? Flip that sentence on its head, and it seems like a really obvious strategy: change jobs every two years, and you can earn 50% more. That 3% annual raise may not look so good now, eh? Why is this the case? The math isn’t fuzzy. It’s a fact that employees are making less money every year. In fact, according to Bill Moyers, buying power is lower today than in was in 1989! Here’s how the math works. According to USA Today, the average raise an employee can expect in 2014 is 3%. Even bad employees can expect a raise of, on average, 1.3%. If you are an exceptional employee, you might get a whopping 4.5%. So, for the sake of the argument, let’s assume you are a great performer and you’re getting an extra 4.5% this year. Now, factor in the current inflation rate of 2.1% (based on the current Consumer Price Index published by the Bureau of Labor Statistics). Your actual raise is 2.4%. Yep: 2.4%. That ought to buy you one or two nice meals, but it isn’t going to magically make your retirement dreams come true. If you are an average employee, however, your raise is a paltry 0.9% – not even a penny on the dollar. And, if you happen to have had a bad year you aren’t even keeping up with inflation as you’ll be losing 0.8% of your buying power. That’s right; even though you get a raise, you could still be losing money. According to Forbes Magazine, “The average raise an employee receives for leaving is between a 10% to 20% increase in salary.” This doesn’t factor in what type of employee you are, just that you are an employee changing jobs in your current industry. The numbers are astounding. Company loyalty could bring your buying power to a stand still, but jumping ship and taking the best offer in your market could move you up much, much faster. Kind of counter-intuitive, huh? There are plenty of reasons for why this is the case, but they are most succinctly explained by Bethany Devine, a Senior Hiring Manager in California’s Silicon Valley. Her expertise with Fortune 500 companies led her to the following conclusion: “The problem with staying at a company forever is that you start with a base salary and usually annual raises are based on a percentage of your current salary.” This type of salary structure sets an upper limit on your raises, even if you have the backing of your manager. If, however, you are applying to a new company, you get to start fresh, and you can use being hired as leverage to negotiate an increase of your base salary – something you can’t do in your current position. Mrs. Devine drives this point home when she says, “Companies competing for talent are often not afraid to pay more when hiring if it means they can hire the best talent.” Is this a trend? Let’s look at the data… When you first hear about this idea, it almost seems a bit obvious. Gaining experience at one job increases your value, so it only stands to reason that you’d be able to leverage that value with another company instead of sticking around for tiny raises. In fact, it seemed so obvious to me that it was hard for me to believe more people weren’t already doing it. So, I started digging through the data to see if people were, in fact, jumping ship. And were they? It depends on who you ask and which demographics you’re looking at. Most government data sources reported the percentage of people who changed jobs hasn’t changed much. For example, check out this chart from the U.S. Labor Department. According to the U.S. Labor Department, the amount people change jobs hasn’t shifted much. However, this particular data set may be a bit misleading. First, it only covers about ten years, and to really get a feel for the difference in the average job tenure, you need a much bigger sample. There might not be any discernible trend from 1996 to 2008, but there may be a trend from 1960-present. Additionally, the data here ends at 2008, and, of course, we saw significantly more instability in the job markets after 2008. This chart from The Head Hunters might be more representative of what’s actually going on: This data set focuses specifically on people staying in job for less than two years–not average job tenure across the board–which, for our purposes, is probably a bit better. According to The Head Hunters, the number of people staying in a job for less than two years has more than tripled–and note that this data only shows numbers from the last twenty or so years. In other words, if this data set is any indication, rapid, upward job changes is becoming a trend. However, as we mentioned before, different demographics tend towards different behaviors, and certain demographics are much more likely to stay in jobs for short periods of time. Here are a few sets of data from the U.S. Bureau of Labor Statistics: Here, we can see that the average job tenure for people ages 25-35 is about 3.5 years. If that seems normal, keep in mind that folks in that age range have likely been a part of the workforce for about a decade, which seems to indicate that folks are switching jobs often. Additionally, in the last graph, note that around 2000, there was a dip in the median job tenure for this same demographic–almost down to 2.5 years–where it continued to bounce around for a while. This also indicates that the trend of agressively changing jobs picked up a bit of steam, even if it rebounded in recent years. So what are the takeaways here? Basically, it appears as if people, especially younger folks, started catching on to the game around 2000. I also think (because there’s so little actually data–that we could find, anyway–on how many people change jobs frequently) that it’s difficult to look at the numbers and see the whole story. So, I’m inclined to put a bit more stock into data like we saw from The Head Hunters. The economy may be changing too rapidly for a 3% raise to make sense. And the job markets may be changing rapidly enough that younger employees don’t have much trouble finding new opportunities (depending on their field, of course). Who knows. One thing is clear, however: whether it’s a trend or not, it’s a lot easier to make a lot more money if you make job-jumping a practice. How much money are you leaving on the table? We mentioned that you could be making 50% less if you don’t change jobs every 2 years. That’s really a lowball number. Take, for example, the story of Jessica Derkis. She started her career making $8 an hour at the local YMCA as a marketing manager. In the 10 years since she has changed jobs 5 times. Each time getting a substantial raise. Her most recent position has her making $72,000 per year – a 330% increase over her first position. While Ms. Derkis may be exceptional, she is a good example of what being proactive in your career can get you. The truth is that almost anyone in almost any industry can do this. Your current company may not be able to give you the type raise you deserve, but they might if you know how to go about it, especially if you have other job offers with higher base salaries. Don’t be afraid to ask questions when you are negotiating. The Monster.com article, Don’t Leave Money on the Table, suggests “you should always take the fact that the employer wants to discuss salary as encouragement to negotiate with confidence.” Sometimes a simple title change in your current company can come with a completely new base salary. You’ll never know if you don’t take the initiative to ask. And this result can be amplified ten fold if other companies are trying to recruit you. The problem is this – your company is only going to have so many positions available and so many promotions to go around. This limited access makes it much more likely for you to get a new position outside of your current company. Quick tip: Don’t tell your current employer you are actively seeking employment elsewhere. Instead, mention that other companies are trying to recruit you, so you don’t seem disloyal. Why don’t more people change jobs? So, if people could be making more money by moving from job to job every few years, why aren’t more people doing it? Perhaps the biggest deterrent against changing jobs every 2 years is that it can be a red flag on your resume. A hiring manager may look at your job history and wonder if you are just using them as another stepping stone in your career. In fact, some hiring managers won’t even consider employing someone with more than 3 jobs in the past 10 year period just for this type of reason. Christine Mueller, President of TechniSearch Recruiters, said that even though this may be true, an employee who makes a transition every three to four years can maximize salary gains. This can also the fear you might have about staying loyal to your company, and it allows you to make the salary jumps that can give you more financial stability in the future. Not everyone agrees with this kind of corporate jumping, however. To offer perspective, Brendan Burke, Director at Headwaters MB, doesn’t agree with this type of rapid job movement. He suggests that “companies turn over great employees because they’re not organizationally strong enough to support rapid development within their ranks. In many cases, that is a recipe for discontinuity in service and product offerings as well as disloyalty in the ranks. As such, we take the opposite approach. Rather than force folks out after 24 months, we try to retain our junior and mid-level staff and develop them within the ranks.” There are problems with this from an organizational standpoint, though. Giving an employee a well-deserved 50% raise can cause all kinds of problems in the ranks. Office politics could cause a major shift in productivity and create feelings of hostility–things any HR department would want to avoid. So, rather than giving out massive raises to the entire staff (which would be impractical), CEOs and HR directors often choose to forgo large raises and hope that the employee stays on board even though he or she may have better offer with industry competitors. Lastly, some people may not change jobs because it’s stressful. According to the Holmes and Rahe stress scale, changing jobs can lead to several major stress factors, including business readjustment, change in financial state, change in responsibilities at work, change to a different line of work, change in living conditions, revision of personal habits, trouble with boss, change in working hours or condition and more. In other words, stress-averse folks may just find it easier and more comfortable to stay put. Is jumping ship worth it? Like everything else, it depends on your outlook, personality and ambition. Being an aggressive ship-jumper often yields monetary rewards but can also create a huge swelling of stress. Are you ready to make changes and move into new areas of your life, or are you happy where you are? Will the new job give you more time to spend with your family and friends? Is the money worth the added stress? These are all questions you’ll have to consider on your own. But the facts are that if you are not making the type of money you want to, jumping ship is one way to get there. It’s also important to note that looking for a job while you have a job is much less stressful than looking for a job when you need one. You have a lot more leverage. Instead of walking into an interview praying that you get the job so you don’t starve, you can go in there looking to get paid what you’re really worth. And don’t be afraid to aim high. Shoot for 50% more than you are making now–or even more if you think you can get it. Just make sure you do your research before hand. If you are a good employee, you should be able to negotiate a great benefits package as well. Don’t settle for what they are offering – get what you deserve. There are plenty of positions out there. According to a Manpower survey, companies are having trouble getting skilled people and when you have the skills you are in the driver’s seat. Take a look at the skills on that list – skilled trades, engineers, IT staff, accounting, drivers, nurses, teachers and machine operators. You don’t have to be in a fortune 500 company to make a big job transfer. You just have to have experience working with the skill the employer needs. Use your job offer as a negotiating tool… If you have a job offer from another company but really like where you are working now, is it unethical to ask your current employer to match it or do you one better? Not at all. Consider this: according to a CBS News MoneyWatch article, a person who negotiates a salary of $5,000 above his current salary can earn over one million dollars over his 45 year career based on the annual raise structure of most corporations. That’s not as much as you’d earn changing careers several times, but it’s nothing to sneeze at either, and we’d be remiss if we didn’t mention that good raises can compound. Understand that your current company may not be able to match what your prospective employer has offered. In that case they may come back with a counter offer. If the offer is acceptable, you have just managed to negotiate a raise to your base salary and increased your overall lifetime earnings substantially. The key here is that you need to have an offer from the other company first. Do not buff at this. If you do and your company does not offer a counter, you will either be stuck in your current position without any pull or you’ll be out a job as they decide to let you go. Timing is important during this type of negotiation. If you are planning to use a counter offer technique, make sure to do so about 3 months before your expected annual raise. This is the time that the budgetary powers that be are creating the new financial goals for the following year. If you wait until the budget is already set, chances are you will not be given a big raise because the funds will have been allocated to something else. Key Takeaways You can expect to earn about a 3% raise this year. Factoring in an inflation rate of 2.1%, your actual buying power will increase less than one penny on the dollar. Changing jobs, on the other hand, can give you an expected pay increase of 10% to 20%. Most companies calculate raises based on your current salary. Negotiating a salary of just $5,000 more per year can earn you over $1 million more over a 45 year period. Companies are more likely to hire new talent at a higher salary than to adjust an in house salary to match market value. Most employees are afraid to ask for substantial raises. If you are going to ask for one, do so 3 months before your annual expected raise. If you get a job offer from another company, you can use it as a negotiating tool with your current employer.