I was always a hard worker and internal satisfaction was definitely a component. However, during my career at my company, raised and bonuses definitely played into my performance and dedication. There was a scale and the payout motivated me.
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I agree - in the end, your values are your values.
At some companies, btw, at least those who don’t seem to lay off, the people you described who don’t step up - those folks who are 40 hours at best, in many ways they are living their dream. They are perhaps blockers to others because they don’t move up - but they get their salary, their 2% raises and as long as they don’t get let go, many live happily…except at the day of Review which is never great and for that one day, they are sad.
But in some ways, they are living their dream - and yes if the bonus was exceptional, to your initial point, they’d still be doing their 8 hours for the entire next year - and not come back a minute early from lunch!!
The two are not mutually exclusive. I come from an industry where the performers generally really enjoy their jobs and do well. And they have jumped ship for companies that offer more attractive packages and better bonuses. I think it’s also different where a bonus is maybe 10% or 20% of your annual package (probably many), vs where your bonus is a multiple of your annual base salary.
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damn, i’m in the wrong job 
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But if you bought your house and are living a lifestyle based on 6 figure or higher bonuses against a relatively low base, and you get “zeroed”, not so good.
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The number one piece of advice we gave to our daughter was to never ever ever ever take your bonus into account when doing any kind of budgeting or calculations for a mortgage. Never!!!
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That’s not really possible in investment banking where base salaries are low, and bonuses can be five times (or more) the salary.
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I also think those who earn multiples of their salary - that’s the .1% but not the reality (just the exception).
We often talk about the exceptions here - but many want to get into roles that are the exception so…
If I get no bonus next year, it’ll suck - but yes, I will be able to maintain my lifestyle.
This is fairly common among Wall Street compensation packages, particularly in front office roles including technology roles that work with the front office. The size of the bonus component varies by role of course (it’s not always a multiple of base salary) but it’s typically significant enough that employees view it as an integral part of their total compensation.
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I am so fiscally conservative that for me that would be even more important to budget based on the base. In that situation, I would tell my kid to amass as much money in cash as they could, put a huge down payment on a house, and have small mortgage payments so they could maintain their lifestyle if it’s a crappy bonus year.
I think it’s very different for young people just starting out who have to build up their savings. How we budget in our 50s is much different than how we budgeted in our 20s.
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It’s fun and cool to talk about bonuses (whether you are 22 or 52). But if you want to do your kid a REAL solid, have a sit down to discuss benefits, retirement planning (yes, even in your first job), how to determine the level of medical coverage a kid is likely to need, what disability insurance is and who needs it and who does not, what withholding is and why someone with prudent financial habits does not need to max out on withholding to give the IRS an interest free loan, etc.
Many big companies have invested in easy to use benefits dashboards, trained counselors who can walk an employee through their various options, “idiot proof” sign ups, etc. but these services are not heavily utilized by young hires in my experience.
Don’t let your kid leave money on the table! Sure, fantasizing about your bonus and vacationing in Majorca is great. But the real wealth creation vehicles aren’t sexy and involve the meat and potatoes of prudent financial planning- risk management, cash management, tax planning, compounding, and understanding why certain insurance products are very profitable for the underwriter (usually because they over or under-insure, which means they are a bad deal for the customer). Getting “dollar one” coverage for your health care sounds prudent- who wants to pay a hospital bill? But your kid will be paying for the privilege every single month for a gold-plated insurance plan that he or she probably won’t need and will never pay out…
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And many of these roles actually guarantee bonuses for the first year on the job to signal typically expected bonus levels.
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What I did when I went from an expat package where housing was paid to buying a place in the Bay Area was to make a large down payment and then do an interest only mortgage that I could pay down each year after bonus. Day to day was budgeted off base.
To some extent, was true during my time in Big Law. Our draws were relatively modest and we only got our profit share after the year closed. But I definitely saw colleagues stressed by their lifestyle budgeted based on their expected bonus.
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Why wouldn’t it be possible to live as if you only had the lower base pay (which probably is not that low)?
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Because these salaries/bonuses are paid in super high cost of living locations, and also one is working killer hours so, for example, a long commute for cheaper housing is literally impossible.
It probably is possible with a lot of sacrifice; more sacrifice than someone who is working 100 hours a week and expected to be available 24 hours a day is willing to make.
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I know people who do it.
They have one of these three things:
1- They aren’t in it for the long haul. They know when they get too burnt out to continue, they’ll have their nest egg and then it’s time to find a role with better work/life balance. The total comp will be significantly less, but they’ll have banked enough based on a few years of the big bonuses.
2-They have a non-working spouse or no children. So the long commute (or its corollary- a one bedroom apartment closer to work) is feasible. And without killer childcare costs, the base salary (and the banked/invested bonus) is totally fine.
3-Their long-term career goals are non-profit/foundation, academia, politics. So the “persona” they are cultivating is not “living it up in a $10 million dollar Tribeca loft”, or the gorgeously renovated Tudor in Scarsdale/Winnetka or the chic Spanish Colonial in the Pacific Palisades. There are plenty of examples in the last few election cycles where the “bankers lifestyle” became issues (present administration excluded, where a high roller lifestyle seems almost a requirement). So living on the base is part of their brand.
Agree that commuting to-- let’s say Danbury CT (lower housing costs, lower childcare costs) isn’t terribly feasible for someone working 100 hours a week, even though there are plenty of folks on the 5:20 train out of Grand Central heading to Danbury every day of the week. These are the people who get in at 9:15, take no lunch, and clock out at 5. Perfectly doable.
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Even in high cost of living regions, is living on a base pay of $100k to $120k impossible?
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One of my early bosses encouraged paying off your mortgage as fast as you could, because the cash flow it frees up for investing after that gives you the only free lunch in the markets (compounding). So I agree with as big a down payment as you can manage and being able to meet your mortgage out of your base salary, but I wouldn’t necessarily agree with small payments to maintain a lifestyle because that keeps you in debt longer.
I did both when I transitioned into the wall-street-of-my-country world. I could pay the mortgage on my new house out of my monthly salary, but it was a chunk of my take-home pay and involved careful budgeting. There were not a lot of fancy clothes and vacations or other “lifestyle” choices in those days. However - less than 3 years after I bought my house, it was paid off thanks to 2 annual bonuses. I know how lucky I was to get into the industry. I see my younger colleagues today (to be clear, we are not in the same part of the industry where bonuses are a multiple of base salary), living great lifestyles (Prada bags and fabulous overseas vacations etc), but paying rent on someone else’s asset (they complain they are priced out of the local housing market, but in reality they are just priced out of the areas that they want to live in). It doesn’t always sit well with me.
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Depends on the interest rate.
People with low rates can actually profit (risk free if they want) on their mortgages.
I wish I had mine back - in that sense.
There’s a mental lift for sure though with no mortgage.
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Depends. If you live in Manhattan and work in IB you’d want to live in chic areas where there are plenty of young folks in your circle. With NYC apartment costs and eating out and fun stuff plus investments in 401k et al that 120k would disappear rapidly. Now add that odd trip or two with friends and the consumption mindset based on expected bonuses it can be a very tight cash flow.
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