Part II · Chapter 3 · Human Capital · lesson 8
Where career income actually comes from
12 min
Builds on The eight factors behind a wage
Part II · Chapter 3 · Human Capital · lesson 8
12 min
Builds on The eight factors behind a wage
Two people are hired on the same Monday into the same role. One accepts the offered 50,000. The other has a twenty-minute conversation and starts on 53,000.
Nothing else about them differs. They both get the same annual increases, expressed as percentages, for the next twenty years. They both change employer twice, and both times the new offer is pitched against what they were previously paid.
Twenty years later the gap is not 3,000. It is not even close to 3,000.
Almost every number in a career is set as a percentage of the previous number.
An annual increase is a percentage of the current salary. A promotion band is anchored to it. A competing offer is pitched against it. So a difference established at the start is not a one-off amount — it is a multiplier applied to every figure that follows.
This is compounding, arriving in a place people do not expect to find it. The arithmetic is identical to a balance growing at a rate; the difference is that nobody thinks of a starting salary as a principal.
Career income moves through two channels, and they are not comparable in size.
The annual increase is set by a process. It is usually a narrow band, it is frequently the same band for everybody, and it is decided by someone whose constraint is a total budget rather than your particular case. In most years, in most organisations, the variance available here is small.
The re-set happens at a transition — a new role, a new employer, a promotion. Here the number is set from scratch against a different reference: what the role is worth, what the alternative candidate would cost, what the person is currently paid elsewhere. The variance available is large.
The consequence is that most of the movement in a career income happens at a small number of moments, and the periods between them contribute much less than they feel like they should. That is a structural observation about how the numbers are set, not a suggestion about what anyone should do.
Predict
A negotiation does not determine what you are paid. It determines where inside a range you land, and the range was set before anyone spoke.
Four things set it, and they are the same factors from earlier in this track. How many other people could do this. How long the employer's search would take. What the alternative candidate would cost, including the ramp-up. And what happens to the employer's plans if nobody is hired for three months.
Whether you have another offer changes one thing in that list and it is the most important one: it changes what happens if there is no deal. Everything else in a negotiation is presentation.
What would you do
Moving resets the pay number upwards and resets several other things downwards.
Accumulated trust does not transfer. The person who could get an unusual decision approved in a day now has to ask through the process like everyone else, and rebuilding that takes somewhere between one and three years in most organisations.
Knowledge of the specific system does not transfer either. A large part of what makes an experienced person productive is knowing where the bodies are buried in one particular codebase, client list or building, and none of it survives the move.
And the counter, which is why anyone moves at all: staying also has a cost that does not appear anywhere. Internal increases are constrained by an internal process, and the longer someone stays, the more likely their pay is anchored to a number set several years ago in different market conditions. That gap generally does not correct itself, because the process that would correct it is the same process that produced it.
Check
There is an asymmetry in how salary information flows that is worth naming plainly.
An employer knows what the role is budgeted at, what the last person in it was paid, and roughly what the market is. The candidate knows what they are currently paid. Those are not comparable information sets, and the gap is widest at the very start of a career, when the difference will compound for the longest.
Some jurisdictions have responded by restricting questions about current pay or requiring bands to be published, on the theory that the imbalance is the mechanism rather than an accident of it. Whether that helps, and who it helps, is disputed and varies by place. The underlying observation — that the first number is set with the worst information and has the longest to compound — is not.