The Difference Good Performance Can Make

Yahoo includes the following information in a recent post on how to earn more without giving up your whole life:

There are real rewards for a company's best workers. Top performers received average base-pay increases of 4.4% this year, compared with 2.8% for average performers, and 0.4% for the lowest performers, according to Mercer, a human-resources-services provider. Further, with most employers seeking to increase performance-based pay differentiation, even greater rewards could be in store for top performers.

Let's take this information and look at the life-long impact of being a good, average, or poor performer. Not that these numbers will be exact throughout a working career (in a good economy, for instance, they'd all probably be higher), but they are likely relative to each other and provide a good comparison for the difference in earnings based on performance.

We'll start with three guys, "Good", "Average", and "Poor" starting their working careers at 22-years-old just out of college. They all make $25,000 as a starting salary. They all work until they are 65. And they all get annual raises as described above: 4.4%, 2.8%, and 0.4% respectively.

Here's where they end up at age 65:

• Good: Career earnings: $2.6 million; Final year salary: $134,048


• Average: Career earnings: $1.8 million; Final year salary: $73,396


• Poor: Career earnings: $1.1 million; Final year salary: $29,212

Big difference, huh? These are exactly the points I was making in How to Maximize Your Lifetime Earnings and Making the Most of Your Most Valuable Financial Asset.

The numbers above show why it's so important that you work at growing your career. No other asset you have is as valuable, and if you consistently strive to grow it (by excelling at your work), you will be handsomely rewarded financially (and, by the way, it's more likely that you'll enjoy what you do if you are doing it well.)

So, do you have a plan to grow your most valuable financial asset?

Comments

[mb]

I think good performance is great way to earn more, but most would plateau, not compound 4.4% raises every year. You need to perform well and take on new responsibilities to continue to earn 4.4% raises. Balancing new responsibilities and life is the hard part of earning more.

[Matt]

In my professional work I earnd rapid raises that exceeded the 4.4% when I was young but as I aged is when my wage hit a level it plateaued and now my raises just keep up with inflation. ( after 27 years in my profession) There is no longer the growth potential unless I were to leave which would mean proving yourself to a whole new employer.

I think the example is flawed in that a really good fork lift operator can not expect to make 134k while a poor one gets paid 29K. You will get paid the wage that the market will bear which may only vary by thousands per year.

[Lurker Carl]

It pays to excel, always. Lousy workers are either short term employees or put in jobs with little affect on the company's bottom line.

My experience - the biggest raises in percent earnings happened early in my career but my biggest raises in total salary compensation happened in the last 10 years. Two reasons - it's far easier to double earnings from $10 to $20 per hour than from $80 to $160; a 10% raise for a $20k annual salary is 1/5 of the dollars for 5% raise on a $200k salary.

[jim]

My biggest raises have been from 3 promotion/paygrade bumps. If I hadn't received those and just got average 3% raises instead then my pay would now be about 30% less than it is currently. All together if I hadn't gotten those promotions then I'd have netted about $300k less total pay over the past 15 years. And I'd probably have been laid off several years ago and lost income while being unemployed. I'm starting to plateau. I might have one more good raise in me eventually but I'm not sure if I'll get that one.

[DR WD Jackson]

Choose attractive, well-paid parents. Go to private school. Cultivate the right people at your prestigious university. Marry somebody wealthy. Entertain the bosses at the mansion/downtown upper-floor river condo you cannot really afford at an early stage of your skyrocketing career in a field with big bonuses.

[texashaze]

Good article. Note that jobs have max salaries too. Once you get to that far end of the band you will get minimal raises regardless your performance. The good news is that to get to that point you are on the high end of the band and are paid more than your co-workers.