Let’s say you are the chief executive officer of a formerly strong financial company. Either your company has faltered under your leadership or you’ve managed to steer clear of toxic assets but the slumping economy has affected you. Or perhaps you are newly hired, brought in to oversee a struggling shell of a company as it tries to regain its stature.
Either your company desperately needed the funds it has received from the Troubled Asset Relief Program (TARP) or the business was competitively forced to take the handout because you wanted your company to stay on par with your peers who were bailed out.
Now President Obama wants to limit your compensation to a measley $500,000. No fair, right?
It makes sense to limit executive pay when taxpayers have stepped in to propr up your balance sheet, whether the company needed the money or not. But it’s largely symbolic, like when CEOs declare they will reduce their salary to $1 per year. They can do that for two reasons: they’ve already made a fortune, and they’ll continue to make a fortune thanks to stock options, deferred compensation, and other perks worth millions of dollars.
Obama says the CEOs can continue to be compensated above and beyond $500,000 through company stock, restricted from sale until the TARP obligations are complete and the government has been paid. This is a great deal; financial stocks have been pummeled. They may go lower, but this built-in waiting period will almost ensure that CEOs stand to win in the long-run.
What do you think about this $500,000 “limit?”
As the economy continues to trudge along, more people are submitting claims for unemployment benefits. In the week ending January 17, more than 4,776,000 Americans received checks from the government to cover job loss, an increase of 61% over the same week last year. This number includes 588,000 individuals who filed for unemployment for the first time that week, an increase of 3,000 compared to the week ending January 10.
Has unemployment in this economic downturn affected you? I have one friend who owns a business. He has had some trouble keeping clients lately; fewer companies want to pay for his services when they need to direct money to more immediate issues. I have an additional friend who was laid off last year when a large publishing empire tightened its belt, but he is the only person I know who has lost his job due to what the media has been talking about for months.
That is, except for Dilbert. Dilbert’s boss fired him for using company resources to start a web business (watch out, bloggers), but Scott Adams’ decision to allow Dilbert to join the unemployed masses may be rooted in the general economic sentiment in this country. Recent strips have Dilbert concerned about his lack of income in a world in which bills are imminent and unforgiving.
Here are two recent strips which illustrate what many Americans are experiencing right now. Click the strips to view them full-size.
January 26
January 27
Despite the fact that my company is squarely within the financial sector, we have so far been immune to massive layoffs taking place around the country, particularly in this industry. While I have something to “fall back” on — and actually, in terms of pure numbers, I could probably do better by leaving my day job and focusing on my independence more — I’d prefer not to be laid off. I like the people with whom I work, and my management attempts to keep me happy and slightly challenged.
I’m not immune to being laid off if the company decides this is the path to take. I could make myself irreplaceable by hoarding knowledge, refusing to delegate responsibilities, and holding my skills hostage. This irreplaceability is often cited as the best way to avoid layoffs. If the business can’t function without you, they won’t let you go. But when it comes down to the way corporations work, everyone is replaceable, from the mail room letter sorter to the chief executive officer. So forget “making yourself irreplaceable.”
Money Magazine has some suggestions for keeping your job amidst layoffs in a manner that will benefit the employee and the organization in the long run.
- Make sure higher-ups know you by solving problems and taking on high-profile projects.
- Share client leads or ideas to generate revenue even if that’s not part of your responsibilities.
- Hang out with the people the boss respects most. The halo of their good reputation may extend to you.
- Keep on top of advances in your field and expand your expertise beyond your core area.
- Look for problem spots that you can help fix. And pitch in whenever extra hands are needed.
- Volunteering to take a pay cut during an industrywide downturn can make you look like a hero.
Notice that all of these tips involve prioritizing the team ahead of the individual. Rather than thinking about yourself and how to protect your job, these tips focus on increasing your value to the organization. You win not by hoarding knowledge, but by sharing, giving, and volunteering, and by being a “team player.”
It’s possible to take these to the extreme. When you give yourself completely to your company, it’s possible to lose a part of yourself. I’ve seen this happen in the non-profit where I once worked. Our small team was a group of individuals highly dedicated to the mission, but none were more dedicated than the executive director. He had very high expectations for everyone’s dedication. In order to success in this organization, employees were required to live and breathe their job, twenty-four hours a day, seven days a week. It’s impossible to avoid allowing your identity to become nothing but your job under these circumstances. And rather than holding onto the best employees, turnover at this organization was high.
Even when not taken to this extreme, concentrating on the Good of the Company makes it more difficult to concentrate on the Needs of the Individual. You can see this when you are sent to attend classes or seminars. If you find yourself at more management seminars run by Tom Peters, who professes management skills that focus on the organization as a whole, than the classes you attend to foster growth in areas that are important to you, you may be losing balance.
The pervailing thought right now is that those of us who have jobs are lucky, and shouldn’t look to employers for anything other than keeping our jobs. This is certainly do to the economic environment — it is an employers’ market right now. This attitude displayed by employers will backfire when the tables turn and companies begin seeking talented employees again. Workers must adapt to the current environment, and right now that may mean sucking it up and following some of these tips from Money Magazine so they are well-positioned when the job market returns.
Fireproof your job, Donna Rosato, Money Magazine, January 15, 2009.
One of my concerns about the original bailout bill was that the money paid to financial institutions would be used to pay for outsized executive bonuses. While companies must offer outrageous compensation to attract and keep the best executive talent, the market place has forced the price upwards.
That worked well when the financial industry was flush with profits, but you can’t ask for assistance to avoid bankruptcy with one side of your mouth while the other side is pushing money to the top decision makers who oversaw the company’s decline into the abyss.
The Chief Executive Officer of GOldman Sachs, Lloyd Blankfein, and six other executives have announced that they will not accept bonuses for 2008. I hope that this sets a good example for other recipients of funds from the bailout.
Don’t get me wrong; these people are not hurting for cash and will likely not experience any financial difficulty at this time. Their children will still have presents to open this holiday season. But this move sends a signal that it is alright to refuse payment for horrible financial results and I hope more banks follow suit.
Thanks to All Financial Matters, where I first saw this story posted.
Update: UBS has joined Goldman Sachs in the no-bonus crusade.
Blankfein, Goldman Deputies Decide to Forgo Bonuses, Christine Harper, Bloomberg, November 17, 2008
Top Executives at UBS Will Not Get Bonuses, Ben White and David Jolly, New York Times, November 17, 2008
Yesterday I mentioned that the U.S. Treasury was able to raise $40 billion in a one-day auction of 35-day Treasury bills. When you bid for these investments, you could either compete with others by offering to invest at the lowest interest rate you’re willing to accept or bid “non-competitively,” accepting whatever the Treasury Department determines the rate will be. Many people are willing to lend money to the government at a rate of 0%. That sounds like a horrible deal, but here’s a few reasons why investors will bid 0% on a short-term Treasury bill.
The stock market is likely to decline. With the media reporting to collapse of Wall Street, putting your money in an investment earning 0% is a better proposition than leaving it in stocks poised to lose money in the short term. I don’t suggest market timing or guessing what the stock market will do over the short term. Did you know on Wednesday that the S&P 500 was going to be up 4.3% on Thursday? I didn’t. Nevertheless, there are situations where not losing money (in a 0% T-bill) is a better option than probably losing money (in the stock market).
More banks are likely to fail. Washington Mutual still seems to be the bank that the media is giving a hard time. It is quite possible, however, that the next bank to fail will be a surprise. As long as your money is protected by the FDIC, you will be able to withdraw your funds. You may not be able to access your funds as quickly as you like, however. Moving your savings account to a Treasury bill might earn you less interest — or it might not — but you’re guaranteed to be able to access your funds. Accepting a low interest rate is a trade-off for much less risk in a volatile environment.
Just because you bid 0% doesn’t mean you’ll get 0%. When the Treasury bill auction ends, all winning bidders get the same interest rate. Winners are chosen from the bottom up, so a low bid helps to guarantee you’ll win. But all investors will receive the interest rate of the highest winning bid. In Wednesday’s auction for 35-day T-bills, the highest interest rate accepted was 0.3%, so this is the rate all winning bidders, even those who bid 0%, received. Now 0.3% isn’t much higher than 0%, but it does match what you might be earning in a standard brick-and-mortar savings account. Bidding 0% means you won’t be bidding too high to be excluded from the issuance.
You expect the dollar’s value to increase relative to a foreign currency. If you live in Japan, for example, and do all your banking in yen, a low interest rate in USD might be a good investment if you expect the dollar to increase against the yen. If the dollar gains an annual rate of 5% against the yen over the period of the Treasury bill and your yield on the T-bill is 0.3%, then your returns after conversion back to yen would be similar to a local bank account earning 5.3%.
Bidding 0% on a Treasury bill doesn’t sound like a bad idea right now, particularly if you think the other options available for short-term investments are worse.
If your goal in life is to earn as much money as possible, then you need to determine before you graduate high school what high-earning career path is best for you. You’ll need to weigh your skills and aptitude to decide the collegiate degree that provides you the best chance for professional success as well as a quick return on the money you (or your parents) invest in your education. You’ll need to get your foot in the door of your industry early, during college or even during high school, perhaps for little or no pay at first.
It’s undeniable that your first job out of college, and the salary that goes along with it, will set the course of your career. Start with a high salary and you’ll consistently be further along than others throughout your life. If you start your career at 25 years old, earning $30,000, you’ll retire at 65 having earned almost $850,000 more in total income over someone who started at the same time earning $23,000, if you’ve both received the same 5% annual raise. (This example is from Free Money Finance.)
With higher starting salaries in a fast-paced career like investment banking, the gap will be much larger.
Managed well, more money means more flexibility to do more things with your life outside of your job — if that career doesn’t work you to death or drive you insane.
However, there are a number of reasons why these tactics might not be the best option.
- It requires an early decisions at a stage when someone might not be fully aware of their talents and aptitude.
- A decision to embark on a life-long career requires a level of maturity that a number of students in high school — and even college — just don’t have yet.
- Chances are good that careers will change once or more throughout a lifetime, sometimes requiring a salary reset.
Some time ago, I polled Twitter users to determine who find themselves in a career related to their original major or college degree. The results were about half-and-half. Here were some responses (keep in mind that Twitter responses are limited in length):
Mmmeg: Majors were classical studies (Latin) & Spanish linguistics, minors linguistics & foreign lang. ed. I work at a fashion site. I was also a jazz performance major for a semester.
frugalbabe: degree in psychology, minors in math and econ… working in the health insurance industry.
PenelopePince: B.A. in Interdiscplinary Studies: Linguistics, Spanish, French, Madarin & German; Minor in Music. I own a pet clothing business.
uppervalleymom: BA in Government, MS in Evaluative Clinical Sciences (public health-y) working PT at business school now, but was in nonprofit exec dir
guppie: B.S. in biology, working in web development
The point is that there is a good chance the decision you make as a high school student or college freshman might not have as much bearing on your career path as you hope. I prefer this advice from author Dan Kadlec, on the occasion of his daughter’s recent departure for college:
Don’t get caught up in talk on campus about which majors are the best stepping stones to financial success. You’ll hear plenty of that from kids who want or may be under pressure to get a quick return from their education. Forget them. Many of those kids will end up disliking their jobs and muddling through so-so careers.
You can make a great living doing almost anything, as long as you love it. So take risks. Explore. Switch majors. Get your head out of the books and do something surprising. There’s time. But find your bliss and pursue it.
Go ahead and get fluent in Spanish and study abroad if that makes your heart sing. Your knowledge and experience will pay off later on, I promise – just as you’ll be rewarded for the joy you bring to tasks that excite you.
It’s good to see advice pertaining to education and career choices that isn’t focuses solely on “financial return.” You can try to analyze your return on investment (ROI) but a good education is about more than just earning power.
A letter to my college-bound daughter, Dan Kadlec, Money Magazine, September 4, 2008.
One of my concerns with the possibility of leaving my day job and pursuing self-employment through writing and managing websites is the unpredictable income. At the extreme, my biggest concern is the idea that it’s quite possible that the income could drop off permanently due to forces beyond my control. But even if that doesn’t happen, the ability to earn income from blogging and such could vary widely from one month to the next.
Budgeting can help, but the problem with a budget is you have to assume a certain amount of income. That’s the first suggestion from Money Magazine in a recent article about living well on a “flexible” income. The article suggestions taking your lowest annual earnings from the last five years, divide that number by twelve, and use the result as your monthly spending limit.
It would be a good idea to inflate your emergency fund. The typical advice for an average person calls for three to six months’ living expenses in a liquid savings account (though you might prefer a more tiered approach to an emergency funding plan). People with unpredictable income may benefit from beefing up the emergency fund to cover one year’s worth of expenses.
Is that too much? If I were approaching a year without income, I probably would have found another job by then, taking what I could if necessary. I suppose it depends on the marketability of one’s skills.
The Money Magazine article warns about underestimating your financial needs in retirement. Rather than anticipating that you’ll need 80% of your income once you retire, a rule of thumb touted by some, look at your current expenses and try to determine what they might look like when you no longer have the desire to work. Perhaps there are some expenses you could reduce while other expenses might increase. Focus on the necessary expenses rather than the income needed.
If you plan for a conservative income, it’s likely you’ll have excess some years. Money Magazine suggests using your surplus cash to build or replenish your emergency fund first and pay off debt. Additional extra cash can be saved or spent.
Insurance should be a concern, too.
For life insurance, consider what portion of your yearly expenses won’t be covered without your salary. Multiply that by the number of years you want coverage (until your kids finish college or you hit retirement is typical). Add in any big stuff like kids’ college costs.
While the article is geared towards people who work for an employer and have an unsteady income, like someone who works on a 100% commission basis, the advice works for independent consultants who need to find clients and other self-employed individuals.
5 ways to manage a ‘flexible’ income, Amanda Gengler, Money Magazine, September 2, 2008
While I haven’t decided whether I’m making a habit of this, earlier today I asked Twitter users whether their current job is related to the field in which they earned a bachelor’s degree. The unique thing about Twitter is that responses are limited to 140 letters and spaces, so it’s a challenge to condense a full thought into one repspose.
Since I am assuming that those who responded publicly are fine with me posting their answers with attribution, here are some of the responses.
- Mmmeg: LOL! Majors were classical studies (Latin) & Spanish linguistics, minors linguistics & foreign lang. ed. I work at a fashion site.
- frugalbabe: nope. degree in psychology, minors in math and econ… working in the health insurance industry.
- ericyng: No. I work in IT.
- PenelopePince: B.A. in Interdiscplinary Studies: Linguistics, Spanish, French, Madarin & German; Minor in Music. I own a pet clothing business.
- nodebtplan: in Bus. Management — working as a recruiter now… so I’m in the business world. Kind of a broad degree. Working on MBA as well.
- Gingerlatte: BA Criminal Justice Yes. I work with women who are on post release by providing psychotherapy and group counseling.
- TheHappyRock: Yes, Comp Science. Although I do have an MBA now too.
- bripblap: have a BA in math, MBA in accounting and working in accounting – so half and half
- Private: I have a B.A. in Art History. I got an M.A. in the same field, then an MSLS. I’m back to working with art history now, but in a library.
- conedude13: Kind of. have a bs in ee but am programming c++ code but am considered an engineer in my dept. Confusing, but was doin civil eng b4.
- MrsMicah: English a field? i mean, English lit and libraries kinda go together…
- SunFinancial: BS, MS, and PhD all in EE, am working in that field.
- uppervalleymom: BA in Government,MS in Evaluative Clinical Sciences (public health-y)working PT at business school now, but was in nonprofit exec dir
- guppie: B.S. in biology, working in web development
- hank_MiB: BA in studio art. currently IT manager, but still do a bit of art on the side
- BurgBarbL: I majored in history and English and use skills from both of those in my field (publishing), if not in lit or history directly
By my count, there are seven polled whose work does not somewhat relate to their bachelor’s degree while ten who are employed in roughly the same field. There is a lot of pressure for high school juniors and seniors to choose a school and their career path or a “major.” Should there be so much pressure when students are still trying to determine their long-term goals and discover their talents?
I decided my career path early on in high school, without much pressure, but I eventually steered my life in a different direction, like a good portion of the people who responded to the poll. While my major remained constant throughout college, my minor floated from computer science to psychology to music management/music business, but during that time I was interested in at least two others.
This poll will tie into an upcoming article. Thanks to everyone who participated. Follow me on Twitter to participate in future polls.
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