I received a very interesting email from a reader last week, looking for advice about whether she should change jobs or not. She wanted to see if it made sense financially for her to leave and join a new company.
With an active job market, people are getting calls from head hunters and recruitment agencies asking them if they interested in various roles they are currently seeking to fill. Some companies are even going directly to individuals to try recruit them.
One of the biggest factors of all when considering a job switch is what the new remuneration package will be, and by remuneration I mean their base salary, pension contributions, bonuses and other monetary benefits like health insurance coverage and so on.
Some people will tell you money doesn’t play as big a factor as you would think it does. Being rewarded accordingly is great, but job security, a company’s culture, their brand, the work/life balance etc. are all more important than what their monthly salary will be. Yeah right!
Of course these factors are important, but I know an awful lot of people who work in organisations they don’t particularly like because of the hours they work, the person they report to not being particularly nice etc... but they will not move. They simply cannot move, unless the package offered by a competitor is better than what they are currently on.
On the flip side there are people who love their present company, but if they are not paid enough, they will consider their options and move on, because money talks.
Another reason why people move jobs more frequently than they used to is because it is widely acknowledged that employees who change jobs have a much faster earning progression than those who stay in the same job.
If, for example you were earning €50,000 per year and a new employer offers you €60,000, that’s an increase of 20%. According to a poll carried out by IBEC, it found the median pay increase employees can expect to receive in 2016 is 2%, and if that was the case, and a person’s €50,000 salary increased by 2% every year, it would take them about nine years before they would reach €60,000. So it is unsurprising why people are motivated to move for money.
However, what I have seen when people are considering moving employers, is that they are finding it difficult to make an informed decision and don’t have enough information and advice to compare what they have currently in place, and what they are being offered. They are looking at the top line figure only, and not factoring in other considerations.
I am not sure if they are accurately comparing their existing package against a new one. For example if an annual base salary increased by €12,000 some people mentally apply that increase and think they will be €1,000 better off each month.
They haven’t taken the time to figure out how much this amount means in net terms, and don’t take the time to compute other variables that may impact this increase - such as an increased commute and subsequent higher travelling costs.
The woman who wrote to me, let’s call her Emily, told me she has worked with the same company for the last nine years. She earns €45,000 per year, has company pension contributions of 5% of her salary and she works about 40 hours per week.
She was approached by a competitor company recently who offered her an increase in her base salary by €5,000 and a 2% increase in pension contributions. Her commute time is one hour more than what it is at present but, if you had the choice Emily has, what is your instinct telling you, which is the better deal?
A. Base salary of €50,000 – Pension Contributions 7% - estimated working hours 50
B. Base salary of €45,000 – Pension Contributions 5% - estimated working hours 40
The majority of people would think this is a bit of a no brainer – Option A all the way - an extra €5,000 base, an extra 2% in pension contributions, and if I have to work a couple of hours extra every day or my commute time is a little bit longer, the overall package will compensate me for this by a long way.
But the reality is that it won’t.
With Option B, you will earn 13% more for every hour you work than with Option A.
Rather than mentally applying the difference between base salaries which most people do, you have got to think in after tax income and you have got to put a value on how much you earn per hour. Because if you did, you would figure out that with Option A, Emily would earn €17.18 per hour, and with Option B it would be €19.43.
You have to put a value on your time and how much you earn each hour if you want to compare like with like. And once you know the difference you can then make an informed financial decision.
If work/life balance is very important to you then Option B would leave about 460 more hours for you and your family than with Option A. That’s an additional 10 hours free time every week. If that is more important to you than increased salary, then it makes the decision of staying or moving all the easier.
I also appreciate that for some people they simply have to prioritise money over time, they don’t have a choice. Just make sure you do your homework first before you make any decision.
Liam Croke is MD of Harmonics Financial Ltd,
based in Plassey. He can be contacted at email@example.com or www.harmonics.ie