What will actually determine your earning potential?

What will actually determine your earning potential?

One of the three things you can’t really discuss — along with failure and sex — is money/salary. As essentially a direct result of this, no one really understands what their salary represents — and that leads to a lot of problems at workplaces (such as people making $150K screaming “I don’t have time for this!” when, in fact, having time for whatever it is constitutes why they make $150K).

Then there’s this: most people have no idea if they’re even paid fairly, with a large majority of us consistently assuming we’re paid below what we should be:

Here’s the thing, though: what actually determines your earning potential (EP) in a time where earnings are mostly stagnant?

Before we get into any research on this, let’s try to make a list of the most logical factors that would determine whether you can make a bunch of money in your career:

  • Where You Come From: This shouldn’t be No. 1, but it probably is — it’s much easier to rise up in the world from some zip codes than from others. Sad but true.
  • Education: Currently I kind of think the idea of higher education has become an arms race — which waters down Masters Degrees in the process — but still, education (and where you went) is still a huge deal.
  • Whether You Had Money/Connections Before: Tied to No. 1 above, but if you’re already connected, people will want to hire you and promote you for access to what you have access to. See also: generational inequality.
  • Your Ability To Play Politics: At most jobs, this is fairly important.
  • Your Ability To Get Closer To The Power Center Of Where You Work: Ditto.
  • Job-Hopping: This is only in the last generation or so, but I think a lot of people now jump jobs for higher salaries. You do that enough and each one is up from the last one, you’re probably eventually making a nice little salary.
  • Having Skills People Are Willing To Overpay For At A Given Time: Right now that’s probably stuff around databases, engineering, and data analysis. If you’re able to sell yourself on those right now, nice.
  • Having Skills/Being Good At Your Job In General: This should be higher, but I don’t actually think it is most of the time.
  • Being Attractive: It might only be a 4% salary difference, but in some industries it’s likely much higher.
  • Confidence: People tend to respond to this, and it could get you closer to that power vortex — which is where you need to be.
  • Sticking Around For A While: This is the opposite of job-hopping but is the Peter Principle. After a while, you gotta go somewhere, right? That’s probably eventually going to be “up.”

That’s a basic list of factors I’ve seen in 13 years of working. Now, is there any science to any of this? (Probably not, because we tend to think about people-related issues last in modern business, and product/process issues first.)

USA Today touched on this topic of boosting your earning potential once. Here are four factors backed by research:

  • Certification: $5,000-$20,000 more annually
  • Learn another language: 2% annually per year (in fairness, that’s barely ahead of inflation)
  • Take on new projects or learn new skills: 7% annually per year
  • Be flexible: This has so many different meanings that you can’t really assign a value to it

All that seems logical, although I worry about “take on new projects.” Tons of people do that every day and don’t get a cent more from their employer based on “headcount” issues, as some C-Suiter banks a $20K October bonus for basically going to 16 meetings. I don’t understand the world.

Now get ready to be depressed: it’s possible that the entire earning potential arc is set in your 20s.

As Wonkblog writes:

Workers projected to earn the median lifetime amount will see pay swell 38 percent from age 25 to 55, with the strongest upswing in the first decade, the Fed study found.

Visually, that looks like this:

Thing is, a median worker goes up about 38 percent … a top 1-percent worker goes up about 1500 percent.

That’s not good. And overall?

For the average person, however, earnings growth stagnates after the first 10 years of a career. Average earnings growth for the 35-to-55 set is zero, the data shows. (Only the wealthiest workers see sustained increases throughout their career.) And things are even more grim for the lowest earners.

Phrased another way in my life: I’m probably totally f’ed.

Most articles tend to argue that education is the single-biggest earning potential factor, but part of that discussion is that … when you say something like that, it feels good. So if a kid from the inner-city goes to Princeton, that kid can experience upward social mobility because education is the great equalizer? We’d all love to believe that, and it probably happens hundreds, if not thousands, of times per year. But I don’t think it’s at all “the standard narrative.”

From my experience, the biggest predictors would be:

  • Where You Came From/How Similar That Is To The People Who Have To Vet Your Career
  • Playing Politics/Access To Power
  • Focusing On Process And Product, Not People
  • Always Deferring Up The Chain Until It’s “Your Turn”
  • Attractiveness/Personality

Notice I didn’t list “actual job skills” anywhere. Most people that rise quickly might be good in a revenue position — hitting targets! — but oftentimes those successes are a product of serendipity. Even with a coming wave of “Big Data,” no one can 100 percent explain why X-Product sells a ton and Y-Product sells like garbage. We can breathlessly analyze, but human choice isn’t always rational. That’s a big thing.

I doubt you’d ever drastically promote someone from a ‘cost center’ within a business — sucks money up, doesn’t make money — but I’ve seen it happen if the above bullet points are met. Usually it’s people from ‘revenue centers’ who hit the above marks — and yes, I believe a lot of groundwork is laid in your 20s.

Here’s the thing with all of this: we want business and organizations to be logical and process-driven, right? But they’re not. They’re made up of people, who are creatures of emotion. The whole ‘creatures of emotion’ vs. ‘creatures of logic’ concept is the essential disconnect about work since the dawn of time. One of the No. 1 places that plays out is “Who gets promoted and why?”

Any thoughts from your own work or life?

My name’s Ted Bauer; I blog here regularly and you can learn about hiring me for freelance and contract gigs as well. You can also subscribe to my newsletter.

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