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Short and Long Game

This morning I read a fantastic article from hiring guru Lou Adler wherein he suggest more professionals utilize “The 30% Solution” when considering a new career opportunity. He says that a new opportunity should represent – in aggregate – a 30% increase in job stretch (defined as a combination of scope/size/impact), job growth, and compensation… the latter of which should only represent a fraction of the new opportunity. The thinking here is that even if, ultimately, one’s goal is maximize earnings that “compensation will increase faster in the long-term when stretch and growth are maximized in the short-term.”

…Using an analogy Adler makes in the piece, from a comp perspective Adler argues that if you can move into a job that represents, say, a 30% increase in job stretch/job growth/compensation – but only 5% of that job growth is in compensation – that you are better off taking that job than you are moving into a role that offers a 20% increase in job stretch/job growth/compensation even if the latter job represents a considerably larger increase in comp (say, 12%)

…So I agree with the general concept of Lou’s “30% Solution”. The difference in money between finishing your career in the middle management ranks and finishing your career in the executive ranks is, simply put, life changing. With that said, I don’t think that pursuing career development over compensation in the short-term is by any means always a slam dunk; this is because you have to make an awful lot of money in the future to offset the gains you get from maximizing earnings (perhaps at the expense of other opportunities) in the present.

Quantifying the above concept, let’s say that in 2014, at 30 years old one can earn $10,000 more after taxes in Job A than one can in Job B. All other things about the market in our hypothetical here (e.g. cost of living, commute etc.) are identical. Now let’s also assume that – accounting for merit increases/bonuses/etc. – that this $10,000 difference in pay holds over a period of five years – after which time it’s erased.

On paper over five years I’ve lost out on only $50,000… but as a practical matter I’ve lost far more than that. If we assume that $50k could have 1. The future value of $10,000 earning 4.5% interest over a one year period is $10,450, calculated as =10000*(1+0.045)^1, so we can find the future value of $50,000 (earned at $10,000 per year over five years) if invested at 4.5% interest by calculating the future value of the $10,000 invested in each year and summing.earned, say, 4.5% interest per year if invested today then you’ve actually lost out on about $57,000. And these numbers only become more egregious as the money compounds over time. Do you make this money up over the lifetime of your career by taking the opportunity that over the long run positioned you into the bigger role? Maybe… depending on the size of the job you eventually end up in here – but this isn’t by any means certain.

…How big of a percentage increase would you have to have in front of you to walk away from a job with considerably more scope and career upside? 20 percent? 30 percent?

As always, please share your thoughts in the comments section below?

Best,

Rory

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