This is the 4th installment of the guest series – Get Your Ducks In A Row – where Anna, a newly graduated working professional, discusses personal finance topics for those in their 20s. Today’s topic? Job hopping. When I first started working, I was convinced that any stint less than two years would be a blemish on my resume. I no longer believe this, but it took me a while to recognize the value of leveraging offers in order to maximize my base salary. It’s important to know early on that job-hopping can be a great means to an end. That said, it comes down to what you are comfortable with. Here’s Anna’s take:
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One of the many stereotypes of 20-year-olds in the workplace is that they are compulsive job-hoppers. While leaving one company to start at another is often advantageous to an individual’s career, it’s important to understand the hidden costs.
Millennials job-hop more than any past generation.
Do they? In 2016, Gallup released a report stating that 21% of millennials have switched jobs over the past year. *Cue the outflow of business articles with the secret formula to holding onto millennial employees.* But Gallup misleadingly compared the generation to current statistics of non-millennials. The real difference here is age.
Pew Research dug deeper to analyze Gen Xers when they were the same age. 63.4% of millennials in 2016 and 59.9% of Gen Xers in 2000 reported that they had worked at the same company for 13 months or more. Furthermore, college-educated millennials have longer tenures than comparable Gen X workers.
Millennials job-hop more than any past generation. Young professionals job-hop.
Changing jobs after a few months or a few years isn’t exceptional to just one generation. However, there’s a tricky balance between moving between firms too often and overstaying in a stagnant role. Too many stints under a year may highlight to future employers that you’re not stable and that you’re not worth the recruiting/training investment because you’ll exhibit the same behavior. But don’t let that deter you if you’re only a few months into a new job and already searching for others.
Advantages of Job Hopping
The average length an employee stays at a company is less than 5 years. With each new job, you’ll gain new expertise, understand a different company culture, get exposure to different elements of the industry, make new networking connections, and ultimately, learn more about yourself. It’s hard to see what you like and need from a position without trying it. For example, out of college, perhaps the idea of working for a large multinational company may have been enticing, but after a few different positions, a startup culture becomes preferable.
While we all want to fall in love with our jobs, sometimes the role or company isn’t the right fit. Of course, to stay relevant to the connection with personal finance, changing roles can be a highly effective way to increase your salary.
Know your Worth
Negotiating your salary is the best way to accelerate your growth. If successful, you’ll have a higher base salary that will influence percentage-based bonuses, commissions, or raises. It never hurts to ask for more.
If you’re a recent graduate, you may not feel like you have a lot of experiences to prove your worth, but most recruiters expect reasonable counter-offers. Start at 10% higher than what you were offered. I was surprised to find that many of my peers did not negotiate with their first jobs. Of those that did, all received at least a small increase. That’s several thousand dollars you could potentially be leaving on the table if you don’t ask.
Negotiating isn’t always playing hardball; sometimes even the smallest things can result in a significant change.
Some Real Life Examples:
Example 1: Amy*
Amy received a job offer verbally for $40K as a radio producer in DC. When she got her paperwork, the documents only said $38K. Having spent months unsuccessfully interviewing, Amy nearly signed the paperwork, happy to even have an offer. After discussing the issue with friends, Amy reached back out to the company to point out the difference. Not only did HR correct the issue, but the hiring manager increased her offer to $42K. That’s a 5% increase over what Amy thought she was getting!
Example 2: Leanne*
In the last four years, Leanne has worked at three different companies, doubling her starting salary. Would she have reached $120K in four years if she stayed with her first employer? It’s unlikely – in the U.S., the average raise is about 3.1%. At most, employees can expect a raise at their yearly performance review. Still, percentage-based raises are constricted by their initial salary. By jumping companies, Leanne has been able to negotiate herself a high base pay.
The Unknown Costs of Job Hopping
While job switchers can experience larger salary growth than job stayers, there are a few potential exit costs to consider before making the jump.
Employer Retirement Contributions
Companies brag about their competitive matching programs, but how long do you have to wait before the benefits kick in? Sometimes, the employer match doesn’t start until 6 months to a year of employment. Switching jobs early may mean that you won’t be there long enough to get the 401(k) matching.
Additionally, the fine print may also specify that the match is vested – the ownership is subject to a schedule. All the money you personally contribute to retirement is yours to move, but any employer contributions may be withheld if not fully vested. For example, if the amount you are vested increases by 20% each year, you won’t receive complete ownership of those employer matches until the 5-year mark. If you leave the company early, you will forfeit some of those contributions.
While these costs may be marginal and unimportant if you deem the job move necessary, it shouldn’t be overlooked.
Bonuses/Commissions
Employees risk losing out on quarterly and annual bonuses and commissions if they leave before the pay-out. Even having a pending resignation may disqualify the employee for the bonus. Depending on the role and industry, this can be a large sum of money especially if the compensation plan has a structured bonus plan.
Reimbursement of training fees, signing or relocation bonuses
Read your contract thoroughly. You may be required to pay back part or all of the starting bonuses you received or the training fees associated with the position if you leave before a certain time frame. While future employers may be able to help offset these costs with signing bonuses of their own, it may amount to a few thousand dollars that you’ll be responsible for.
The Choice Is Yours
Finding the right time to start a new job is tricky. Job hopping is no longer as frowned upon as it once was, and the personal advantages continue to persuade workers to move. I hope this article helps prepare for smoother transitions so you won’t be blindsided with loose strings.
*Real people, fake names.
Photo by David Villasana on Unsplash