Posted by Tim Stobbs on July 14, 2010
My workplace recently changed its performance management and compensation practices to a new system. Basically in the new system there are four ranks you can get related to how well you meet your goals. If you get the top rank you can get an extra one or two percent raise compared with the rank below it. What struck me about the system when discussing it with a friend is that it doesn’t provide much motivation to go the extra mile. A 1 or 2% raise likely isn’t enough compensation for the amount of work you would need to do to achieve that top rank.
For example, if you earned $80,000 a year and did an extra half an hour of work a day over a year(~ 122.5 hours) to get that top rank. A one percent raise would be an extra $800, while two percent would be $1600. That works out to $6.53 to $13.06/hour of extra work. Granted that doesn’t take into consideration any improvement in pension benefits, but even if you assume a very generous 20% bonus that still works out to $7.83 to $15.67/hour well below $40/hour the person is making on their base salary.
So overall there isn’t much motivation to go the extra mile at my day job. What this did inspire me to think about was where then would you put your extra mile to get the most bang for the time put in? This then lead me to wonder a bit more about my long term goal to do more writing when I pull leave my day job around my 45th birthday. Why should I wait to work on building that business up? Doing it now would likely pay better than the extra effort at my day job and now that I’m working 80% time I have the time to consider doing something like that.
Perhaps the solution to leaving your day job isn’t just having enough investment income that you don’t need to work, but rather having enough income from other sources that you don’t need the day job. If you like working on something else that provides a stable income why shouldn’t you consider it as part of your plan going forward? Granted in my case, income from freelance writing and/or self publishing isn’t all that regular but if you build up a business to the point where you are getting fairly regular income over the course of two years you might be able to count on a portion of it.
That way over the long haul you are basically working yourself towards a full blown semi-retired situation where yes you are working, but on something you love. The rest of your income then would come from investments. Of course there are risks to a plan like this, but frankly so is expecting you to keep your current job for income. Overall I feel having income from investments and self employment could very well be less risky than full employment with a company over the long run.
So would you try to work yourself into a semi-retired scenario or are you too attached to the idea of full blown early retirement? Myself, I’m not really sure, but I’m now thinking about it.