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Hello All,

I have a hypothetical question regarding employee compensation. I might be facing a decision in regard to this and would like any and all comments. I do not have concrete information as of yet, but some general info has been made available to me.

For example if the current situation is:

Base salary, typical yearly increase of around 3% (purely at the discretion of the company, but 3 out of 5 years it happens), up to a 10% yearly bonus depending on whether the company achieves goals for the fiscal year, and a small component of the bonus depending on personal achievement.

Hypothetical option:

Base salary, NO yearly increase, up to a 20% yearly bonus depending on whether the company achieves goals for the fiscal year, and a small component of the bonus depending on personal achievement. Given this situation, I imagine salary benchmarking would have to occur more frequently or employees would bail.

In addition, let's say that you were given an incentive of 5% guaranteed when you make the switch paid at the end of the current month to make the switch. So, base salary, plus 5% guaranteed bonus, and the possibility of an additional 20% bonus) this fiscal year.

I can see only down side to both situations because raises and bonuses are all at the discretion of the company. They could take them away at any time in either situation.

There are too many unknowns in either situation and I doubt that a great deal of specifics (or guarantees of any kind) will be provided. By moving to the hypothetical option, I can see a lot of negative ramifications down the road.

* 401k contributions do not ratchet up because you contribute based on a percentage of your base pay. You could manually increase the contribution from time to time, but that takes away cash that you might otherwise need to live on. So, there is not a painless way for your contributions to grow.

* No growth in base salary to help hedge against inflation. You couldn't expand your recurring expenses as inflation erodes your buying power.

* Potential for a lower wage with future employers because they always ask what your base salary at your previous job was.

There are a lot of other negative things I can think of. I know FWF members are great at pointing out these things, so I'd like everyone to chime in. Please give me the pros and cons of this situation so I can make a good decision when the time comes.

Thanks.

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saver0513 said:   
* 401k contributions do not ratchet up because you contribute based on a percentage of your base pay. You could manually increase the contribution from time to time, but that takes away cash that you might otherwise need to live on. So, there is not a painless way for your contributions to grow.

401k contributions are frequently made from all pay, including bonuses. This may be company dependent.



* No growth in base salary to help hedge against inflation. You couldn't expand your recurring expenses as inflation erodes your buying power.

This is a problem. My bonus is based on a % of my salary, and the salary needs to increase for the bonus to increase.


* Potential for a lower wage with future employers because they always ask what your base salary at your previous job was.


Employers ask for your previous salary, to which you can easily reply with "my total annual compensation was.. $x,000 including bonuses"


I don't see the upside to the company - for them nothing changes but a larger target bonus for each employee. They already have the option of giving raises or not, and would retain that right.

saver0513 said:   I can see only down side to both situations because raises and bonuses are all at the discretion of the company. They could take them away at any time in either situation.

Bonuses are never a guaranteed thing unless you sign a contract that has that in stone. I doubt you would find anything in writing that would guarantee that.

An employer tried to do this with me verbally before coming on-board, but then I found out that there was not going to be anything in writing to make it officially "guaranteed" and asked for (and got) higher base pay instead.

I know that bonuses are not guaranteed. That's why I see mostly downside to both situations.

In some ways it seems that the new option is better (because there is slightly more upside than the current situation).

The 401k situation seems to be the most negative aspect of the new option.

Sounds like the only thing that they've offered you is a base salary. Nothing else is in writing, neither the bonuses or the annual raises. I think it is a waste of time if you don't have any hard numbers - if i were try to compare the two through math, even a simple comparison would require hard numbers, an expected probability of the company actually hitting it's goals (probably base on last 5-10 years outcome), and an expected rate of return of money invested.

I have an understanding with my manager that he will heavily weight my raises to my bonus target over my base salary because bonus target has a multiplier. Sure I might lose out in some years, but my employer has a strong history of paying good bonuses.

The interesting thing is that I'm already employed by this company. They claim to be offering the new plan to standardize incentives throughout their global operations.

I have the option to opt out of the new scenario, but I can't decide whether it's worth it unless they're willing to give hard numbers (which I doubt will happen). Next week I should have more info.


Edited to correct typo.

Any estimate on how long you want to stay there?

That might be your answer.

I planned on stay long term because there are other benefits that are pretty good. Plus, I've been in the corporate world long enough to realize that if you change jobs, not much REALLY changes.

we had a similar switch here several years ago.

when i first worked here, we got large annual raises on a good year - like 7-10%, plus a smaller bonus (at the time I was making $60-$70k and got a few thousand). Then they changed to a plan like you describe, where everyone gets a more standard COL raise, around 2%, plus a bonus that depends on how we meet our goals.

it kind of sucks for these reasons - my salary was increasing fairly rapidly since each year was compounding on the previous year's increase. The salary raise was based on personal performance, from a salary pool that was based on company performance. If I had a good year, I would get a bigger slice of the pie. I was in control of my income, to an extent, so if I worked hard, I was rewarded.

now my compensation is very much out of my hands. if the company fails to meet its (very aggressive) goals, the bonus pool is smaller and my bonus is thus smaller, regardless of how hard I worked or what I contributed. there is a little movement in the raise, where I can get 0-1% for a personally bad year, and maybe 3% for an amazingly good year, but those dollar values are tiny. it's painful to get a tiny raise and then get a small bonus when I worked my ass off.

i'm not sure if this makes sense, sorry... I'm in a rush! but I don't like the new system and much preferred the old. when the new system was rolled out, it was announced that we were overpaid and this was a temporary measure to bring our salaries back down into the local range, so it was certainly a way to control compensation to the employees. the risk is that people will jump ship to get a salary boost (common in my field - i'm in biotech and surrounded by other companies) but we're all pretty loyal and few have left the company since the change.

my two cents.

Thanks Mass.

The second the new plan was mentioned (without full details), I got a bad feeling. I've been around long enough to know that when big changes like this occur, it's always in the best interest of the company and typically not the employees.

I've had interesting discussions with fellow employees regarding the pros and cons based on a lot of assumptions. One thing that became clear, based on a 5 year simulation of compensation under the current plan vs. what we assume is the new plan revealed that if the is no COL (which we suspect there might not be) it makes little sense to stay with the company for more than 3 additional years.

All of this discussion will heat up in the coming days as we find out more details.

saver0513 said:   ...
One thing that became clear, based on a 5 year simulation of compensation under the current plan vs. what we assume is the new plan revealed that if the is no COL (which we suspect there might not be) it makes little sense to stay with the company for more than 3 additional years.
...


You may want to start polishing your resume. I suspect several of your smarter coworkers may start to jump ship when this becomes apparent. If so, there will be a group of you with fairly similar backgrounds and skills seeking jobs in the same area at the same time.

I've seen this happen at my company too. In the last two years many have jumped ship to competing companies for better pay. One unexpected positive is now I've started to get calls from some of my ex-coworkers to come interview at their new companies. We worked great together and they want to build a new team.

Is option 2 no possibility of raises or just no standard raise? If it's no possibility then that job sounds pretty crappy



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