Why I Passed on a 90% Pay Increase – What’s Your Price?

by Darwin on December 7, 2009

The other day, I was contacted by a headhunter (everyone calls themselves an “executive recruiter” these days even though I’m nowhere near an executive level position) with a very attractive proposition.  He had a position that was roughly aligned with my current role and prior experience with another large bio-pharma where the total compensation with some conservative assumptions would be about 90% more than my current total compensation.  That includes salary, bonus, stock options/restricted stock and assumed that benefits were roughly equivalent. To most employees able and willing to change employers for the right offer, this sounds like one of those “once in a lifetime job offers that was just too go to pass up”.  Without further analysis, I probably would have thought the same thing myself.  However, my initial reply was thanks, but no thanks.  Admittedly, I did think about it a little more and still feel the same way based on several factors.  Why?

The reasons are varied and surely apply only to our current situation.  For many people confronted with a similar opportunity, this would be a great move.  And perhaps it would have been for me too – if my personal/professional situation were different.  But I passed without asking any further questions or going down the road of interviews, negotiations, etc. only to end up in the same place.  When I started considering everything involved with this transition and putting aside the benefit of a higher income, but weighing the negative aspects, here were some considerations that swayed me against pursuing:

  • Location - A move would be required.  Aside from the fact that we have friends and family in the area, and it’s only 1 state over, this move had some additional financial implications.  We currently live a reasonable cost of living area, good school district, etc.  To move within a decent commute of say, 30 minutes from the new role, the cost of living is astronomical.  In my subsequent research, the same house and property we have now or a slight improvement would be about $250,000 more.  To get the same or a slightly nicer house and property, we’d be going from a conventional mortgage at 4.625% 30 year fixed to a jumbo mortgage since we’d be way above the $417,000 mortgage limit for conventional loans.  So, not only would we be incurring an additional $250,000 in debt, but it would be at jumbo rates, which are substantially higher than conventional rates given the credit situation in residential mortgages.  (More info on Mortgage and Refinance)
  • Personal work-Life Balance – There are some benefits to staying put that are tough to quantify.  Over the years at my current employer, I’ve established a reputation, relationships with hundreds of people and I actually love my current role as a Project Manager.   I live close enough to my current workplace that I can occasionally get over to my kid’s school event or pop home for lunch without even stepping out for a full hour.  I’ve been able to coach for my son, tag my wife out when she needs me home for something at night, etc.  While I still put in some decent hours and have some early/late night overseas calls occasionally, it’s nothing like earlier in my career when working long hours not only the norm, but expected, to the tune of 60-90 per week.  You can never tell just from a cursory interview what kind of culture or expectations come with the new role, but in order to learn an entirely new culture, new systems, take on more responsibilities, travel quite a bit and possibly inherit a mess from your predecessor, life’s certainly going to change dramatically – and it may not be for the better.  Most of the flexibility I enjoy now would be gone.
  • Travel - On the topic of work-life balance, this role would certainly entail significant travel.  While I do enjoy modest travel and would like to see more of the world, constant travel can take a toll on family life and result in burnout.  I don’t travel much at all now and to switch to something like 25-30% travel including international, might take such a toll.
  • Risk - The company under consideration was a mediocre company in my assessment.  Not as large or prestigious as my current company.  Now, I’ve had plenty of colleagues leave and go to smaller, lesser-known companies for the money.  And, in most cases, they say they’re glad they did it and they’re making a heck of a lot more money than I am.  In a couple other cases, they’ve actually been laid off or left on their own because it wasn’t what they thought.  You never know what’s going to happen, but you’ve got to ask yourself whether it’s worth the risk of going to a company you don’t necessarily aspire to work for just for a pay increase.
  • Your Current Salary is What??? – Here’s the kicker in salary negotiations.  I’d been through this before when considering a move.  A headhunter throws out a large number and a great-sounding title to get you in the door.  After going through the process, the outcome might be something like this (pure salary example here):

Current Role is say, Manager, Salary + Bonus = 100K

Advertised Role is say, Director; Salary + Bonus = 190K

Here’s what happens when the recruiter or the company HR rep finds out what you’re currently making (never tell them up front so they don’t lowball you, but eventually you’ll need to give them an honest reply  once accepting an offer since they’ll likely ask to see prior pay stubs, etc.):

“Oh, we couldn’t actually increase your compensation by that much.  That’s just not doable – you’re talking about a 90% increase which obviously isn’t realistic.  We could offer you 150K total which is still well above what you’re making now”

Here’s a better one:

“OK, they loved you.  The company wants to make you an offer.  However, they were looking for someone with just a bit more experience for the Director position.  However, they’re willing to make you an offer for a Senior Manager position.  The pay is still very high at 150K”

Well, in each of these cases, that wasn’t what you actually signed up for, right?  The only reason you even considered it was because the 190K is one of those gamechangers.  The 150K may not be.  They got you in the door for the higher paying Director role and they’re trying to pick you up for a more modest increase.  OK, so 50K isn’t modest at all.  But in this example, it’s just not what you signed up for.  And, considering you might have to move, incur higher cost of living expenses, etc., in the end, you’re barely achieving a raise on a normalized basis.

Summary

In reading some of my considerations above, you might say, “Well, you’ve already made up your mind and you wouldn’t leave under ANY conditions”.  That’s not necessarily the case.  Everyone’s got their price, right?  Realistically, perhaps if I didn’t have to move or could work from home, if the travel weren’t so substantial, if the company were on par with mine…perhaps these factors would sway me to consider leaving for substantially less actually.  However, in this case, when factoring in the mortgage difference alone, higher taxes and longer commute costs and other intangibles, that 90% increase turned into something on the order of 1/3 of that.  Seriously; with the tax bite and headaches, is altering our lives that substantially worth an extra increase to that degree?  I’m not leaving for a 30% increase.

I’m interested in where you’re at on these situations.

What’s your Price?

What other Factors Drive Your Decision?

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    { 9 comments… read them below or add one }

    1 Evan December 7, 2009 at 10:27 am

    While I agree with your analysis and where you landed the only thing I would have done differently was interview.

    If done VERY discretely what is the harm? taking a half day?

    [Reply]

    2 Darwin December 7, 2009 at 9:44 pm

    Hi Evan,
    True, normally, there’s no harm in doing an interview and in fact, it would have the benefits of additional networking, honing your interviewing skills and perhaps even translate into a different role down the road when you make an impression on them. In my case, I’ve been down the road a few times and it’s the same thing each time – I blow a vacation day, regret even heading down there because I’m not really serious about leaving, end up hoping they don’t even make an offer once I find out it’s kind of a lame environment, company, people, whatever, and then when they do make an offer, there’s a catch – like the ones I mentioned above.

    I think if and when the time comes that the “perfect” opportunity rolls along, I’ll be glad I was patient. For now, these headhunter/interview discussions really just become a distraction. I end up setting up spreadsheets, calculating how much more per month we’d have with all the different assumptions, how many unvested options I’m leaving on the table here, etc. You could drive yourself nuts with the game unless you’re really interested in leaving.

    Every couple years though, probably not a bad idea to get out there and test the waters. I think a lot depends on your specific situation. My wife’s home and I’m the sole provider for the next few years. For dual income couples, I think there’s much more opportunity to take some risk – and probably some benefit to diversifying when they both work for the same company which many do. In our case, I’m more focused on security and work-life at the moment than maximizing income.

    [Reply]

    3 Credit Card Chaser December 8, 2009 at 12:41 am

    You make a great point with the whole bait and switch scenario as that probably happens quite often.

    [Reply]

    4 Financial Samurai December 8, 2009 at 1:15 am

    Hi Darwin,

    Good topic. Headhunters ALWAYS inflate the figure to wet your interest, and it seldom is what you will get in the end as you point out.

    You provide a fantastic data point how strong the job market really is. It’s absolutely nuts in the finance world right now btw. 50-100% job offers are very common place, and I think 1Q10 we will se a lot of movement.

    It’s important to realize that a $90,000 bump is nice, but that’s only around $60,000 after tax. When you start think about after tax, it’s a different ball game.

    What’s my number, if I had to move locations and change firms? It has to be at least $300,000 more, with a title bump. $300,000 is $170-180,000 after tax.

    I think once someone makes more than say, $250,000/yr, everything else is just gravy, and an increased income doesn’t change your life much until you get to $750,000++.

    Best, Sam

    [Reply]

    5 kenyantykoon December 11, 2009 at 12:24 pm

    the major thing that i would look for would how much of my freedom and love of life i would give up. i am kinda so happy with my life and i would not like to give it up just because of a fatter salary. One might move to another city for the job and find that for that salary, you are working your hands raw all days of the week. this would not sit well with me

    [Reply]

    6 Len Penzo December 11, 2009 at 9:04 pm

    Congrats on recognizing that you can’t put a monetary value on life balance, Darwin! So many people only look at the salary that they really end up finding out they made a real mistake only after it is too late.

    How do you put a value on a 5 minute walk to work? Or knowing you will be home to have dinner with your family every night, as opposed to being on constant travel?

    I am extremely dismayed to learn that companies actually pull bait and switch tactics on prospective employees vis-a-vis proposed salaries.

    There has to be a way to keep past salaries out of the equation. It’s been a dozen years since I last jumped companies, so forgive me for asking this question, but for proof of prior employment, why can’t prospective new employers be given pay stubs with redacted salary info – either by you or your employer?

    Best,

    Len
    Len Penzo dot Com

    [Reply]

    7 Team @ Money Compare December 12, 2009 at 8:43 pm

    Hey Darwin, thanks for sharing your experience. You’re so right on the decision. Once you’ve considered all those intangible things such as time with family, uprooting your family from your current hometown plus all the headaches that accompany a senior position make it easier to decide either yay or nay.

    [Reply]

    8 Monevator February 17, 2010 at 5:13 am

    I didn’t take a job in another country due to family health reasons. It would have paid at least 2x my salary at the time, and not taking it partly curtailed the path I was on back then.

    It was a real eye opener for me to see how I felt about life when it came down to it, and since then I’ve made more time for family (not just the sick one!) than I ever did before. Maybe not enough time, but far more.

    There’s *definitely* more to life than money.

    [Reply]

    9 Budgeting in the Fun Stuff February 23, 2010 at 2:06 pm

    For me, it would depend on the increase in hours and whether we had to move. My husband and I really don’t want to leave the Houston, TX area, so we probably wouldn’t unless we could retire in 10 years or less.

    I currently make $35,000 a year before taxes and have full benefits. If I used my degree, I could easily get a $60,000 a year job, but I’d have to work about 70-80 hours a week instead of my current 40 hours a week. For a girl who likes her home life as much as I do, that’s just not an option.

    I would take a new 40-50 hour a week job in the area if it paid at least $45,000 and had full benefits. I’d work 50-60 hours a week for $60,000 a year plus benefits. I’d only take a 60-80 hour a week job if it paid at least $90,000 a year plus benefits. I wouldn’t take a job that required more than 80 hours a week unless I could easily retire after 3-5 years.

    IMHO, I’m only getting one shot at this life…I want to use it by making my friends and family laugh, volunteering, and traveling. I haven’t heard of any job/career for me that can compete with that.

    [Reply]

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