The Advisors' Blog

– Broc Romanek

I gotta blog about anything entitled “Compensation Wormhole,” right? Love this piece by Performensation’s Dan Walter. Here’s the intro:

Time Travel. In the movies, it usually requires some door into a wormhole or some type of hyper-drive. In the business world, it’s one of the easiest things to do. No special skills or tools are required. Leaping ahead 4 or 5 years is as simple as changing the destination in your GPS.

We have been living in an age of 3% annual increases for several years. Sometimes it’s a bit more; sometimes it’s a bit less. On average, it’s not too inspiring. We do our best to give a bit more to our best performers, but those in the middle must fend for themselves. It’s not hard for them to find a time machine.

Let’s look at it from the perspective of an employee who is doing a good, but not outstanding job.

Let’s say you’re making $100,000 in base pay. You don’t know it, but you are on the low end of your pay range. This is mainly because of the pay from your start date combined with budgetary restrictions. It’s likely that this number is also the basis for much of the rest of your total rewards. Perhaps your STI target is 30% of base. Maybe your LTI target is 40%. Even your 401K contribution is based on your overall pay. Next year all of these things will climb by 3% (if you’re lucky). Over the next three years, the increase will be about 10%.