Wednesday, July 10, 2019

Dealing with Golden Handcuffs

Golden Handcuffs refer to financial circumstances that keep someone tied to a career or employer when they might otherwise prefer to move on. I’ve never had a lavish executive pay package, but have still faced a small version of this dilemma and have put a lot of thought into it. It is a form of privilege to even have to worry about it, but one that I think many will face when considering retirement (early or otherwise) or other types of career changes.

While I was pursuing an MBA, I was blessed to grow my career as a financial advisor to the point where my income was greater than that of the typical newly minted MBA ($100-120k/yr at the time). When I started my degree I was making considerably less than $100k and had my sights on a post MBA career change into corporate finance. In order to avoid student loans, I took five years to complete my degree, which in turn gave time for my income to grow to substantially over $100k.

As I approached the end of my degree, I was faced with a real dilemma. If I took a job like the ones I had wanted a few years earlier, I would have to take a pay cut of more than $50k/yr. If I chose to remain in my same job/career, the income would continue to be great but I would lose a critical opportunity point where it would make sense to pivot out of the financial services industry.  

Ultimately, we did decide take a much lower paying job that has since given me opportunities and a career path that wouldn’t have been possible without making the change. My current income has also surpassed the higher paying job I left. Had we not made several deliberate decisions in our lifestyle and mindset though, the decision to leave would have been much more difficult and things may not have turned out the way they did. 

As our income grew, we didn’t allow our lifestyle to also creep up. 

A well-timed promotion blessed me with a near doubling of my income potential right at the time when my wife began staying home with our firstborn. While a great opportunity, the guaranteed portion of my pay actually slightly decreased. From day one, we made the decision to treat any of the additional variable income as a bonus and to use it to strengthen our base. Once we had a comfortable cash reserve, we began regularly making 4x or 5x our normal minimum mortgage payment such that by the time I graduated and quit my job, we were within 6 months of paying off that house.


Don’t kid yourself that you can’t make a similar income elsewhere

I took a pay cut because I was changing to a different career field, but had I wanted to leave and stay in the same industry I’m sure I would have been able to make similar income at another company. My golden handcuffs were mostly in my head...since I had never made that much money before it was hard to fathom being able to replicate it elsewhere.

Over the years, what I have learned is that switching companies can be quite lucrative and if they want you bad enough, they may even make you whole for whatever you have to leave on the table to join. I’ve seen several 6-figure cash signing bonuses, and often see folks who join a company externally do so at a higher level of pay, position, or both than if they had grown their career to that same point internally. 


Long-term incentives will always be there - Don’t count it until it’s actually yours

I recently got placed into a bonus pool where I will receive company stock grants each year that vest over multiple years. Unlike 401k match money that becomes 100% mine after I reached a specific tenure with the company, each stock grant I receive has it’s own time to vest before it will actually be ‘mine’. To prevent this from becoming golden handcuffs, we’re treating this like a bonus and will only include the vested portion in our net worth calculations. This will help to not ‘anchor’ myself on a number that at some point may become large enough to cloud my judgment.

Don’t get me wrong, I’m planning to stick with my current employer for a while, but it will be because each day I get to do work that I enjoy, with people I enjoy being around, that stimulates my mind, and that is part of a larger mission that aligns with my values. Oh, and the pay is nice too.

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