"You Only Get Market Comp When You Leave"

“You Only Get Market Comp When You Leave” - I’ve heard this expression before and it seems very true in finance. I don’t understand why firms always nickel and dime their own employees but then are willing to pay a premium for outside hires. My current company (which I’m leaving in two weeks) is a perfect example…turnover is rampant because people are constantly offered much better compensation packages at other firms. Anyone else see a lot of this?

I’ve seen that most firms run ER associates on a rolling basis - train them up, work them like a dog, then force them out by not paying market wages/bonuses, and then start over. Some firms are known for not promoting from within, and it is expected that to move up both career-wise and on a comp level that one must leave the firm to pursue further opportunities leveraged with experience and skills in hand. DirtyZ - Why are you leaving your firm (and what was your role)? What are you going to do now? Are you getting an increase in comp to market rates, and was this what motivated your decision to leave?

Of course but it is kind of poor form to say to an employee. I mean there are a lot of games in finance, not saying what everyone knows to be true, etc. Luckily for me when I asked for more money last bonus season my boss said to me “Im not going to be the type of guy to tell you to find more money on the street”. As to some eloquent reason why this is, its not just finance, but I guess its a matter of switching costs that employees sometimes dont think are worth it (usually for personal reasons).

mcthorp - see my post on “corporate credit analyst interview” for details…essentially I’m leaving my current job because I’m not challenged, the growth prospects aren’t here, and the offers I was getting over the past two months were in some cases nearly double what I make now. I wound up taking the job I referred to in the above post (Saks thanks again for your input), and was pleasantly surprised that they actually paid me “market rate” because I’ve become so accustomed to being nickel and dimed at my current spot. mcthorp said: Some firms are known for not promoting from within, and it is expected that to move up both career-wise and on a comp level that one must leave the firm to pursue further opportunities leveraged with experience and skills in hand. I agree that this is the case - I’m just not sure why firms choose to always recruit from outside and do not promote internally. I can understand 2 years and out in IB, because you generally grow to hate your job and any more time doing it at that level and you would flip out and burn the firm down. But with other slivers of finance, it just strange to spend all that time developing someone only to boot them and start all over.

The reason for all this is that firms know it is much harder to recruit new talent, as opposed to pleasing current staff. Most people do not enjoy switching jobs and are not constantly on the lookout for opportunities. I personally believe that every 2-3 years you have to experiment and see what the market offers you, and convey the message to your employer. Afterall, you gotta do what’s in your best interests.

Why do firms not like to promote internally? I don’t know, but I think it has to do with morale. If a class of 6 associates enter at the same time, then some times past only 1 is promoted to analyst, the other 5 will probably not treat the newly promoted analyst as a boss or jump ships. If the analyst position is filled from outside recruits, some might jump ships but at least the ones remaining will listen to the new analyst. Just my theory. Seems like this happens a lot when corporate 500 CEOs retire. Jack Welch retires, Jeff Immelt is promoted then Nardelli and the other guy immediately resigns. In fields of high ego, when someone is promoted, you can be sure hell will be raised from the people of similar seniorty/contribution. Easier to get someone from the outside.

Kevin: very good points. Dezert: I agree - most people don’t want to “disrupt” their lives by switching jobs, but those that are willing to put in the time to look and network every 2-3 years are usually rewarded monetarily. I’d like to see a study that looks at people who switched jobs every 2 years in finance versus someone who stayed at the same firm for 10 years. My bet would be that the job switcher would be making significantly more on average (assuming they were switching to “better” jobs of course).

It’s a sad fact but it is indeed true. It’s the built-in bet that you are either too comfortable or lazy to leave. Right after you fully vest is best. I left this year just after vesting for 401k, some options vested, and my biggest quarterly bonus of the year was distributed. Bah Bye!

How long does it take to fully vest on average?

5 years

I think it would be 5-6 years at most places. It was 6 for me. They started contributing after year 1, then it’s 5 years for full vesting. It’s 3 1/2 at the new firm, and they put in 15% into a pension for me without any required contribution!

what do you all have for 401k contributions? I have 10% of total comp vesting over 5 years + 50% of the first 6% contributed vesting right away

i put in 15%, company kicks in another 4%, and then i get a 5% cash balance DB plan

This actually happened at my previous company, a BPO in India. We Chartered Accountants were recruited through campus interview. Since the co’s competitors were Big Four companies & other very big names in India, the pay they had to offer was very attractive (so that people would even walk into that room). So the bunch of us who liked the job profile - credit analyst position for a big bank) were started at very competitive salaries. We joined the co. to find that our six-months seniors were working at 75% of our pay! The co. in 2 months time increased their’s retrospectively to match ours. None of them left cuz they did not want to be branded as job hoppers. In the next appraisal, the hike they got was hardly anything more than ours. I completely agree that a job switcher makes more than those who stick on.

From what I’ve seen job hopping (every 3 years or so) is fine as long as you contribute meaningfully to each firm when you are there and are well-liked. If anything, you build a better network from it.

I do not if banks work the same as accounting firm…but here…I think it is the business model to let people go after 2-3 years although the firm say “we focus on our people”. I think the model is: the % of “compensation increase” increases as people stay longer… then the firm is paying more as people stay longer, so the firm underpay and let them go–>decrease cost also, as new people come in, the firm train them, besides the special trainings, the major training comes from client work itself–> more hours are billed to the client–> increase revenue just my $0.02.

I agree with the statement about market comp. Esp. with lower level, jr. positions…firms love to low ball employees with less than 5 years experience because they have leverage in providing you the experience you need to be competitive in the work force. They provide training and support for CFA but it’s usually not a big deal when people leave because the process starts all over again, because there are plenty of young candidates waiting in the wings willing to take these low paying jobs and get into a high demand industry, esp. in Buyside firms, like the one I work in. It’s disappointing, but alot firms wouldn’t do this if the costs outweighed the financial benefits (the bottom line).

Another factor I forgot to mention in my earlier post relates to earning respect. If you start as an associate analyst straight out of college (or whenever) you really have no idea what you are doing until you have learned the ropes, taking a year or two to absorb the work. In that time you have probably made some dumb mistakes (we all do) and opened your mouth a couple times when you shouldn’t have, and generally made a lasting impression on the people you work with, specifically, the senior traders, salesmen, bankers and other research analysts. They will only remember you as the guy who published a chart in that one report that had a competitor’s numbers in it instead of the company’s numbers and that they still have a general feeling that you are a F-up. You need to earn the respect of your peers, and, when starting at a grunt level, it is hard not to make certain mistakes that will be seen by all and leave a lasting impression because you really had no idea what the hell you were doing when you started out. That’s why you leave your company to go start fresh at a new firm where they don’t know how you F’ed up your boss’ bonus last year. You get a fresh crack at earning your peers’ respect with the knowledge gained by making those idiotic mistakes at another firm. Caveat - There is a possibility for promotion within my firm. I did make my mistakes the first two years at another firm, and now I am at a fresh firm with a good amount of respect earned from my peers (and I work with the same boss I had at my last firm). I like my job and don’t have any inclination to jump ship any time soon.

mcthorp - that’s a really good point…it makes a lot of sense.