You are a salaried employee in one of the high pay, high hours, high stress careers and want to slow down a bit. You are happy enough with your company and your job, you just want to do less of it and have time and energy for other things. And you don’t need all that money they are paying you. You want to trade some of that high salary for additional time.
You’ll be a happier, more productive employee who’ll be less likely to jump ship and the company will benefit accordingly. It makes perfect sense, so why is it so rare? Are companies just stuck in the stone age?
I’d like to focus on just one aspect that seems to blindside people asking for less work for less pay.
A Multiple Choice Question:
You are making $160,000/year and are working 80 hours/week. You want to work 40 hours/week. What is a fair annual salary at these reduced hours?
My guess is that most employees looking for reduced hours would say (b) with some selecting (a) or (c). For a company faced with this question the answer is generally (d), sometimes (c).
That’s Not Fair!
Most employees presented with (d) as pay for working half as much would complain bitterly about how unfair it is and how the company is making a mockery of offering real work-life balance choices.
But if that’s the right offer, so what? Perhaps a few very logical or very burned out employees will take it. The rest will reject it and will keep working as before, right?
Unfortunately, no. The company is likely to spend significant resources managing the outrage and will likely experience higher turnover than if it did nothing. To provide this choice the company has to effectively offer a pay increase while dealing with additional complexity.
So the company does nothing.
Why isn’t (b) the right answer? Why is working half as much for half the pay not reasonable? Two reasons:
- Pay includes fixed costs.
- Each hour of work does not have equal value.
Pay Isn’t a Purely Variable Expense
Some costs to the company remain very similar whether you work 80 hours/week or 40:
- Fixed, or nearly fixed, costs like benefits and office space.
- Amortized fixed costs like hiring, training, firing, and risk of action against the company.
- Semi-variable costs that have both per hour and per person components like management and support.
- Costs that vary with salary in non-linear ways like social security taxes.
As a first approximation, lets take $20,000/year as the allowance for fixed costs. If you felt that (c) is fair, you probably accounted for this component.
The Value of the Marginal Hour
The 80th hour isn’t worth the same as the 40th hour. If it was, you probably wouldn’t be so interested in getting it back. The appeal of less work for less pay is that you seem to pay extra cost for additional hours while the company does not seem to get extra benefits. You likely aren’t more productive at hour 80 than you are at hour 40.
The mistake is in assuming that your salary doesn’t already take the difference in value of these hours into account.
Regardless of the specific reasons companies prefer the high hours approach, as salaries evolved to their current state, market forces nearly certainly forced proper compensation for the marginal hours. To get the marginal hours back, you have to give back those extra salary gains.
Marginal hours are hard to value, especially since they become more and more valuable as they stray further from the norm. The 50th hour is a bit more valuable, 80th much more, 100th much more still, etc. So the more hours you work, the higher percentage of your salary you’ll need to give up for each hour you get back.
A reasonable starting point is what employees consider fair when working overtime.
According to the Department of Labor, hourly employees must be paid 1.5 times for hours worked after 40. Many companies offer double, triple, even quadruple time for hours beyond certain thresholds, or for working during holidays or other undesirable times.
Assuming hours 41-80 are worth 1.5 times hours 1-40, 60% of your salary goes for paying for the extra hours. $160,000 * 0.4 = $64,000. When we subtract the $20,000 we get $44,000.
What About Choice (a)?
If you picked (a) you are probably aware that there are factors beyond $/hr, but are focusing on factors that are beneficial for the employer and feel that you deserve to keep the surplus. Perhaps increases in productivity or reduction in costs associated with turnover.
These factors can mitigate some of the costs, though keep in mind that I also left out most of the reasons employers prefer high pay/high hours approaches. Some of these likely involve productivity and recruiting.
The right calculation for a specific company will depend on their real costs, competitive position, market environment, how good the specific employee in question is, etc.
Irrespective of what the ‘right’ answer is in each specific case, it is far more complicated, and likely far less attractive, than your salary divided by 2.