Management Compensation is Part Reward, Part Disaster Policy
During the peak of my career, I made pretty big bucks: pushing $400,000 in my best year. But don’t envy me. I found out it didn’t matter much.
What is management compensation in real life? It is a combination of reward and insurance policy. The reward comes in the form of big salaries, company cars, bonuses, stock options, private club memberships and fancy benefit packages.
The insurance policy is protection from disaster.
The financial rewards pay managers for a big jump in responsibilities for leading staff, budgets, goals, objectives, etc. They also are payment for the extra time a hard-working manager normally puts into a job.
Any high-paid manager who makes a six-figure salary and works only 40 hours a week is rare and lucky. I got away with averaging 50 to 55 hours a week over decades, some weeks more than 70 hours and a few single days as long as 21 hours. I was fiercely focused on productivity and time management for the sake of managing my energy level and spending time with my family.
Every day was a blur of constant, fast-paced activity. I didn’t just work a lot more hours than I did as a staffer. I also worked with a lot more effort and energy per hour.
So staff people and any younger employee with a career plan in management need to know that higher pay comes with sacrifices of time, family, personal interests and occasionally even health.
None of the above means that big compensation packages aren’t appealing. But they really are just a reciprocal agreement: a manager has to give a lot if she or he wants to get a lot. These realities alone should eliminate some of the envy that workers may feel toward big management salaries.
Compensation as Insurance Policy
I have known many managers during a long career. I don’t know a single one who got through an entire career without a major setback. I’m sure they exist. I just haven’t met any.
Here’s why: a job is a combination of reward and risk just like investing in the stock market.
Imagine putting $100,000 into the stock market at the beginning of 2017, getting a 19 percent return and ending the year with $119,000. The reward is the increase of $19,000.
Now imagine a 12 percent decline in 2018 at the time of this writing. The risk is the decrease of $14,000 from the gain of the previous year. So investing in stocks has both reward and risk.
A job is no different, especially in management. Compensation is the reward for doing a decent job. Promotions, salary increases and bonuses are among the rewards.
But jobs also come with the risk of failure. Younger employees often spend paychecks more easily because they often haven’t learned the fear of losing a job. Long-term career survivors manage that risk by looking on their higher compensation as a form of insurance policy.
Why a Career Insurance Policy?
People contribute money to an insurance policy on a regular basis to protect themselves against a medical, auto, house or financial crises. Smart managers do the same by saving and investing a large amount of their hefty compensation to protect themselves against:
- Getting fired, demoted or laid off.
- The company shutting down their division.
- The bankruptcy of their company.
- A personal crisis that requires them to quit or take a demotion.
I had a fairly successful career with a decent number of promotions. But I also ended up in a division that declined, forced me to take a demotion in a smaller management structure and ultimately shut down altogether. I escaped to another company right before the end.
Five years later, I also quit that six-figure job in senior management because of a severe family crisis that consumed an enormous amount of time and energy.
My “insurance policy” helped me get through those highly stressful and largely unpredictable disasters. It also helped me launch a new career in online consulting and publishing. Not a drop of regret.
No one, absolutely no one, can predict the future of a job, career, company, family, personal health or other situations that may end a highly compensated job in management. It’s why a career insurance policy is essential for financial security.
See More on Leaders and Managers: Career advice for people in charge.
Why the Big Bucks Don’t Matter Much
The alternative is simply foolish. I have known highly paid people who spent all of their money on larger houses, nicer cars and exotic vacations, only to see it all vanish after losing their jobs. Their regret and stress were enormous.
Hollywood and other media put the lifestyles of top executives on display all the time. They make us think that those executives are big spenders, and so any manager can do the same. Although top executives are often big spenders in part for the sake of image, they make enough money to buy their own insurance policies in case of failure.
They also have contracts that guarantee multi-million-dollar payouts if they leave under almost any circumstances except for cause. A great example is former CBS chairman Leslie Moonves.
His contract called for a $120 million severance package if he was forced out. As it turns out, he did the one thing that meant he wouldn’t get a dime: he was fired for cause because of sexual harassment.
Foolish managers start on a career path in management, get a boost in compensation and think they can spend freely to reward themselves for their extra efforts and responsibilities.
But they simply lack the experience and maturity to know that many potential pitfalls lie ahead. They see all reward and no risk. They certainly don’t have multi-million dollar severance packages.
Do You Have a $1 Million+ Severance Package?
Top executives like Moonves have the experience and track record to know there is plenty of risk. So they demand contracts that protect them from that risk. The protection is so lucrative that they never have to work again if they get fired (under most circumstances).
Middle and senior managers usually don’t get contracts that guarantee insurance protection against disaster. So they have to create their own by striking a balance between a nicer lifestyle and saving large amounts of money for financial security.
My own insurance policy paid off. My savings rate exceeded 50 percent of my total compensation at the peak of my career. Every dime I saved was an investment in future peace of mind.
Trust me, at the end of a career, I have no regrets about buying that $25,000 Honda Accord instead of the $90,000 Range Rover.