Do Your Math Before Taking a Job – How Not to Get Screwed

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While you must do your math before taking a job, not all jobs are created to be equal, and one must evaluate the total compensation package instead of making decisions solely based on salary.

Sounds basic and logical, but every now and then I get to observe some lopsided situations where decisions appear to have been made solely based on the salary the job paid and nothing else.

I want to talk go over three brief scenarios, but before I do that let me be clear that this discussion is based solely from a financial perspective. In other words, my discussion is geared solely from a financial perspective and not a total perspective which includes factors such as time off, flexibility, travel, distance from home, corporate responsibility, self satisfaction, etc.

I am certainly not advocating that these components are not important. In fact, I believe that the overall situation should be considered when making a job related decision.  I have taken lower paying jobs in the past because of other non tangible compensating factors.

Do Your Math Before Joining Corporate America

Salary packages typically look something like this: base salary + guaranteed bonus + unguaranteed bonus + personal time off + holidays + sick time + 401(k) match + retirement contribution + health and life insurance subsidies + X.

The X represents everything I have forgotten and left out of this equation. Not all companies offer all of the components of the equation however.  It is important that you first find out what is offered, and then get clarity on how much of each is offered and when will you be entitled to the benefit.  For example, your company might match your 401(k) contributions, but when do you vest in (become entitled to) them is the main question?

I have included vacation and personal time off because each day you get off from work is a day you are paid and do not have to work.  When you leave a company and have left over personal time off, you are typically compensated for that time by equating a dollar value to it.  If you truly want to get the full picture of the total compensation package, you should factor in the monetary value of your personal time off.

For example, which is a better compensation package of the two:

A)    A job that pays $115,000 base salary with 20% bonus bracket and comes with 20 personal days off, 10 holidays, 100% match on your 401(k) up to 6% of your salary or . . .

B)   A job that pays $120,000 base salary (no bonus) with a $5,000 sign on bonus, 10 personal days off, 6 holidays and a 100% 401(k) match on up to 3% of your salary?

Not so plain and simple is it?

Let’s quickly work it out by valuing the not so clear components of the offers.

A)   20 days off + 10 holidays = 30 days off.  $115,000 / 365 days per year = $315

$315 X 30 days = $9,452

401(k) match assuming you maximize your matching limit = $115,000 X 6% = $6,900

With Job A, you are getting $9,452 + $6,900 = $16,352 more in value for a total package of $115,000 + $16,352 = $131,352

B)   10 days off + 6 holidays = 16 days off.  $115,000 / 365 days per year = $328.77

$328.77 X 16 days = $5,260

401(k) match assuming you maximize your matching limit = $120,000 X 3% = $3,600

With Job B, you are getting $5,260 + $3,600 = $8,860 more in value for a total package of $120,000 + $5,000 (bonus) + $8,860 = $133,860

Assuming both jobs are the same in terms of company culture, size, profile, roles and responsibilities, Job B is a slightly better option by $2,508, strictly from a financial perspective.

What you have to consider is the intangibles involved.  Another component not factored into the example is the Bonus potential that comes with Job A.  I assumed bonuses did not pay out.  But what if they did?  Even if they paid out at 15% of the 100% eligible amount ($115,000 X 20% X 15% = $3,450), the better option would then swing to Job A.

Bottom Line? Do your math, evaluate the big picture, understand what is important to you and go with the best option.  Your decision will be much tougher than my simple calculation because there is much more to a job than just the (financial) compensation package.

My Friend Dan

This one is classic and one that our group of friends still laugh about today.  When we were all in college living in dorms, our friend Dan used to scour garbage cans picking up soda bottles and cans.  He would even go to nearby high schools and scour their trash cans, often getting in fights with the school janitor over who should be entitled to the refund revenues from taking the cans back to the grocery store.  Man this was funny.

Dan also would stay back weeks after school got out to pick up all the carpet students would throw out of their rooms when they moved out.  He would spend countless hours and hard sweat labor hauling back carpet to his place, straightening it out, cleaning / vacuuming it and then rolling it up nicely and storing it for the next year’s incoming class.

In the fall, Dan would move in weeks ahead of the freshmen so he could sell them his carpet.  His logic was that he was getting the stuff for free, and turning it into profits.  This made him feel good, while the rest of us couldn’t stop laughing at him and with him.

See, Dan is a one track minded individual and failed to grasp the big picture in my opinion.  Either that or he simply got a thrill from doing this and felt like a big time entrepreneur.  All of his friends (us) told him that with all the time, effort and headache he invested into these “ventures”, he could have easily worked at the campus deli, bookstore or the dorm cafeteria and made much more on a per hour basis.

There is no doubt that Dan was financially worse off when computing his minimum wage rate from his activities.  But did he get pleasure and thrill from these activities?  Did he learn a lesson?  I don’t know the answers to those questions although I certainly hope he did lol.

Bottom Line?  Understand the big picture before diving in nose first.  Most people work to earn money.  Why would you work for $4 an hour when minimum wage is $7+?  Dan could easily have gotten a campus job at $12-15 an hour.

The Pizza Delivery Dude

Many people are looking for something to do on the side to earn extra cash.  But even then, a careful analysis of the true expenses incurred vs. the money made from the side gig must be made before making the decision whether to take the job.

Couple years back Jonathan from the MoneyBlog wrote about spotting a Red Audi S4 with a Papa Johns sign on top of it.  Unbelievable! How desperate can one get?  Either that, or the individual stole the car, or mortgaged it out and lost his or her job (cheap credit was easy to come by just a few years back).

Jonathan wasn’t able to click a picture of it but he did attempt to recreate it in Photoshop.  Below is what the car looked like.  Yes, I couldn’t believe it when I saw it.

Red Audi - $50,000

This car is roughly $50,000.  If you think about it, the depreciation on this car alone is high enough to overcome with tips received from delivering pizza.  Add to that the cost of gasoline, stop and go driving which takes a hard toll on the car and leads to more repairs and maintenance bills, the time spent (wasted) in traffic and the frustration.  Some people can handle it but I know I’d blow my top off.

How much does a pizzeria pay delivery boys and girls?  Last I checked it wasn’t more than $9 an hour.  Jonathan uses an estimate even lower.  How many deliveries can one make in an 8 hour shift? Add that up, take taxes out, deduct all the expenses and what conclusion did you come up with?  Is the person better off sitting at home?

I don’t see how anyone can make this work.  Pizza delivery to me is most beneficial for someone driving a beater or the kid on campus who rides the bike to deliver pizzas to nearby residences and dorms.   Everything is close by, and more deliveries can be covered on an hourly basis, resulting in more tips per hour.

There is one exception to this example, which all three, Jonathan, his readers and I sort of agree on, which is that there is likely something else being delivered other than pizza in that bright red Audi 😉

The examples or scenarios above, though they do not apply to you, contain valuable lessons that can be applied even to side gigs and jobs paying six figures.  I purposely chose these examples because they are “light weight” in nature but do a good job getting the point across clearly.  The key take away here is that you must always do your math comprehensively, evaluating qualitative factors along with it.  The dollars alone sometimes do not tell the full story.

Readers: What are your thoughts on this subject matter?  Do you have any more examples / scenarios in mind through which we can convey the intended message here?  Would love to hear them!  If nothing else, what do you think the pizza dude or “duddette” is really delivering in that $50,000 car?

Sunil
Calculating

4 Responses to “Do Your Math Before Taking a Job – How Not to Get Screwed”

1. Everyday Tips says:

   October 7, 2010 at 5:03 am

   I was just discussing total compensation last night at a soccer game!

   So many companies could get away with lower salaries because they offered a great ‘total compensation’ package when they hired the person. Bonuses! Stock options! Great Insurance!

   Now 5 years into the job, employees are finding that their stock options are underwater, bonuses are gone and their health insurance has gotten incredibly expensive.

   I know that salaries are also being cut by some companies, however, the safest thing to do in my opinion is to negotiate a good salary.

   Reply
2. Sunil says:

   October 8, 2010 at 4:57 pm

   you are right on indeed…with the healthcare reform, the impact on employer provided insurance should be an interesting play. insurance has always big a big component of the job selection decision, at least here in the US where costs are beyond belief (thanks to the trigger happy litigous society we have built).

   you seem to be talking from experience. got any tips to reinforce your last comment that can help our readership?

   Reply
3. Lauren says:

   October 10, 2010 at 11:44 am

   Wow – way to put things into perspective Sunil. I was already a fan of your Blog, and this posts just reinforces that further. I also read Jonathan’s Blog and can totally relate to the Red Audi example. I have no doubts more than just pizza was delivered in this vehicle 🙂

   Reply
4. Sunil says:

   November 3, 2010 at 2:40 pm

   Lauren – welcome to the sub-section – the guest comments box that is. As you know this blog is relatively new, and will only gain traction with the support of likes such as yourself.

   You should come back and interact more 😉

   Reply