AskDong

Larry Page, and Sergey Brin of the I will do no evil folks of Google and Megalomaniac Steve Jobs have one thing in common. All three of them of earn a lot less than me in wages. Too bad that isn’t really saying something about me. All three of them take home a salary of $1 per year. Sergey and Larry have been earing $1 for a few years now. Steve has been doing it longer than those two. The nominal salary is intended to indicate a commitment to the company each of them works for (and founded). At the surface of it, it sounds like these CEOs have been able to eschew the greed that is so prevalent in the corporate world. However, like everything in life, it’s not so simple, especially in the case of Steve Jobs.

None of these billionaires are lacking in money. Their wealth is primarily determined by how the GOOG and AAPL stock performs. I applaud a compensation structure that rewards CEOs who truly add value to a company instead of just holding the job. Long term ownership is the key part of a proper incentive structure for senior executives. While I do believe that all three of these men have taken the $1 salary as symbolic gesture of how they feel about their work, I also feel that $1 salary is a bit of a sham.

In the case of Steve Jobs, his $1 salary is particularly disingenuous because he receives particularly generous compensation in the form of stock. The Googler’s $1 salary is a more genuine reflection of their compensation as they are not given gigantic stock grants. They have enough stock as is.

The problem of the $1 salary is that it’s another example of the problem with having two different tax rates for capital gains versus income. I have a problem with this in the realm of private equity, and with further reflection have an increasing problem with it in all aspects. Not only are capital gains taxed at lower rate, but income derived by capital gains avoid payroll taxes as well. The uber wealthy like Jobs and Larry Page can avoid paying social security and medicare taxes. Are they intentionally avoiding these taxes? In the case of Larry and Sergey, I doubt it. Steve Jobs, I’m not so sure of. Regardless of the reason for their compensation structure, it exposes flaws in what should be progressive tax structure.

At the same time I am conflicted. Fundamentally I do understand why it’s good to have a lower capital gains rate - to spur new investment. The problem is really with what is often an arbitrary distinction between regular income and capital gains. Salespeople who are paid by commission have as much income risk as as an executive who is paid by stock grants. Yet their incremental income is viewed very differently by the IRS.

I’ve talked in the past about earning more money. I’ve blogged about blogging, dividends, rental income, and getting a raise. What I haven’t explicitly talked about is what earning money really means. I’m a capitalist in the Adam Smith kind of way. I believe that capitalism adds value, and funadamentally we are only paid when we add value to the world. There are of course nasty externalities and market power problems that make capitalism not as straight forward as some would like to believe, but that’s a topic for another day.

Too often we approach a money making venture, be it our day jobs or be it our alternative incomes with a focus on the numbers. How much rent can I get? What’s the dividend yield. These are not the wrong questions to ask, but they may not be the questions that truly need answering. We I really should be asking myself is, “What value am I adding?”, “What value can I add that someone else can’t or doesn’t?” Being able to answer these questions is more important than figuring out what the payday is.

For example if I think I can make money picking stocks, I shouldn’t be worried about making 20%. I should be worried about what makes me more skilled at picking stocks. Do I understand the industry better than other people, and therefore can identify companies that the general populace doesn’t properly value? Am I skilled accountant who understands balance sheets and income statements far better than the average investor? Do I associate with CEOs and know which ones are principled and disciplined? When I take the time to answer those questions, I realize I don’t have very many of the necessary skills. And that’s why on the most part I try to avoid making individual stock picks.

The same principle can be applied more generally to any endevour. People who have successful careers are people add significant value in their work. In some cases as with a salesperson, this value is easy to discern and quantify. A good sales person sells more than his or her peers and that’s the value. However for most jobs, the distinction is harder to quantify. However, to be successful it’s not just about doing your job. Almost anyone can be trained to perform a given set of tasks. Succeeding is about creating value. Too often we think of our jobs as about finishing in assignment when we really should be thinking about new ideas. We live in society that rewards those who think of and implement new ideas.

I was listening to On Point with Tom Ashbrook talking about how young people are having kids later in life. I would fall in this demographic. I’m yet unmarried, and don’t have children. I just turned 32, and can’t imagine being a Dad until I’m at least 34. Apparently 52 percent of 1st time college educated mothers are over the age of thirty these days.

While the discussion centered around the debate if better or worse for parents to wait until they are older, many of the topics were centered around money. As is often the case many decision involving close relationships (in this case the creation of a child/parent relationship), money is important part of that relationship, especially in the case of children. There were arguments from both sides. A younger woman who decided wtih her husband to have kids earlier rather than later felt that their youth allowed them to be more flexible in spending. They were able to make do with IKEA and Craigslist for their furniture needs -furniture that doesn’t need to be protected from the destructive tendencies of most three year olds. On the other hand, many “older” parents are more mature and feel better prepared financially for the burden of children.

While older parents might be more financially secure, they are also likely to be more set in their ways. Older parents with years to spend money on themselves may find it harder to cut back than younger parents who never got used to spoiling themselves. Raising children is not easy and involves sacrifice. Is it easier tosacrifice at 25 or 35? I’m hoping it’s easier to make sacrifices at thirty five given that at this point in my life, I have no choice in the matter.

One the bigger issues embedded in the parenting question is a career dilemma Women are often unfairly put in situation of choosing between career and family. While the choice should apply equally to both men and women, more often than not it’s the woman who has to choose. Many woman feel that they have to delay starting a family in order to jump start a career. Interestingly one caller to the show, a young mother, thought she would have leg up because she would be ideally situated in her early thirties, finished with the most grueling years of parenting, when others would be pulled parenting needs. Yet, many parents feel like there’s no choice at all. Tom’s producer, Julie Diop, who was featured on the show spoke of her own situation. She’s a producer for public radio show, and her husband a private school teacher. Living in the costly northeast, it would be difficult for them to live on either income alone.

Last week I was looking back at what’s been my career and thinking about where I was. I’m probably mid way through my career. It’s been a good career so far, I like to think. I think I’ve only begun to fathom how different a place I’m at now, nearly 10 years after my first real job. I’m not only older. I also have very different expectations on pay and responsbilities than I did ten years ago. I think in most careers there are basically three stages:

• What You Can Do
• What You Know
• Who You Know

There’s usually a progression from the first stage, “What You Can Do” to “What You know” and finally for some to “Who You know.” Depending on the career these transitions don’t have to take place, but these stages are found in many career trajectories.

What You Can Do
This stage is probably the most obvious. We all have to pass through this stage. When I was hired for my first job, it wasn’t because of industry knowledge. I didn’t know a thing. I had good non specific skills and willingness to work hard. The success of any company and especially consulting companies is built on the foundation of relatively “cheap” labor. When you’re young and just out school, it’s about doing the tasks assigned. Do those tasks well and then some and you will be noticed.

What You Know
Eventually after a couple years, most people transition to a point in their career where they are still “doing,” but their real asset is their experience and knowledge. I’m at this stage in my career. While I still “do” alot, I know in the end the company could easily hire someone younger, cheaper, and with sharper technical skills. Someone with the right educational background could easily handle many aspects of my job, and even do it better. However, the distinction between that young turk and myself is experience. (I really sound like an old fogey these days) Someone out of school who doesn’t have the experience doesn’t know where to begin. My prospective employers don’t look to what skills I have. They may care that I’m good with a spreadsheet, but I’m not hired based on speed with Excel shortcuts at this stage in my career. It’s what I know rather than what I can do that make me attractive to potential employers.

Who You Know
I can argue until I’m blue in my face how it’s always important to know people and have a healthy career network. However, my point here is that for many careers, especially careers dependent on signing deals, the whole reason someone has job is often for the contacts he or she has. These are the rainmakers of the industry. Rainmakers are the people who get the contracts, and often the ones who get paid the biggest bucks. They exist in every industry. They are lawyers, and bankers, but they can be anyone in any industry. They bring in the dollars, and get signatures. I like most people will probably never hit this stage of a career, nor do I necessarily want to.

I set a new record on consecutive daily weekdays posts On Wednesday. I only set it because I broke the streak yesterday when I failed to make a post.  Even though I set a new record, I can say with a clean conscience I’m am not in the Mitchell report.  Like Roger Clemens I have never tested positive for steroids, and unlike Roger my face has never been suspiciously puffy except after eating too much.

I’ve been extremely busy at work this past week, logging about 60 hours over the last 4 days. It’s kicked my ass. In general my work schedule is pretty good. I work 40-45 hours week, basically 9-6. I don’t need to be in exactly at anytime, and can easily take some afternoons off or show up late every so often. However because of the nature of my work, I go through some very busy periods. This past week was one of them, and I can look forward to another stretch of long hours in the few months after the new year. Times like this make me think, it would nice to know that I can be home by 6pm everyday. However then I think about not having the flexibility to sleep in every so often, and am glad that I have flexibility.

What do you prefer?