Paying employees with profit-sharing deals and commissions is a concept spreading through the business world. In other words: when you perform, you get paid. Companies are clamping down on flat salaries and adding incentives: bonuses tied to profits, project completions and performance goals.
At General Mills, every employee’s pay has a variable component. Mailroom clerks to senior executives can add from 3 percent to 100 percent of their base salaries at the year-end if team and individual performance objectives have been met. Alan Ritchie, president of the American Compensation Association, says that firms like the so-called pay-at-risk concept because it allows them “directional correctness: in good years payrolls go up and in bad years, down.”
You can make the most of the incentive-pay trend, says James Challenger. Negotiate the best starting salary you can, and then introduce the idea of a goal-oriented bonus yourself. Set a six-month objective and suggest a financial reward for meeting or beating it.
Don’t expect the same benefits package your new co-workers enjoy, or even the same one you had. Companies have been shaving benefits like retiree health care fornew hires, and may have dropped their old-fashioned defined benefit pension plan while you were job-shopping.
Consider the retirement plans. When you switch jobs, you may have to wait six months or a year before you becomeeligible for your new employer’s 401(k) plan. But look at this loophole: if you won’t be eligible for the new plan until 1996, andif your spouse doesn’t have a pension plan at work, you can invest in a tax-deferred Individual Retirement Account this year, no matter how grand your salary, says the Internal Revenue Service. Waiting periods for health insurance are also lengthening. In high-turnover industries like restaurants and hotels, you can wait for six months or more before your health insurance kicks in.
One solution: Buy stopgap insurance through your old employer, your spouse’s employer or on the open market, says Mark Maselli of Ft. Lee, N.J., benefits consultants Kwasha Lipton.
But there are other ways to protect yourself. One is to negotiate a good deal with your suitor. Once you’ve settled on a salary, ask for a one-time payment to help fill those pension and health-insurance gaps. But don’t expect too much, says Maselli. Companies may pay for the missing months of health insurance but probably will be unwilling to spring for a year of retirement benefits.
Beware of taking your retirement funds with you when you switch employers. When you leave a job, you always have the option of taking your 401(k) money and shifting it directly into a rollover IRA that you select and manage. But you can lose some benefits that way, warns New York tax attorney Stuart Kessler.
Income averaging, a technique that allows workers to take lump sums when they retire and then spread the tax burden over five years, is available only to retirement funds kept with an employer. Money in a rollover IRA becomes taxable in the year you withdraw it.
If you pull out a lump sumall at once – to buy a retirement home or take a once-ina-lifetime trip – there’s no income averaging to spread the tax burden. You may get other advantages from leaving your plan alone: employer-held plans often offer better management at lower fees, says Kessler, and may afford broader opportunities to borrow against the funds, something you can’t do with a rollover IRA.
If your old boss won’t let you leave it, your new boss may let you bring it. All the same benefits apply if you roll your old 401(k) funds into your new plan, but fewer than half of all firms allow you to bring it along. If they both say no and creating your own rollover IRA is your only choice, don’t despair. You can still build wealth if you keep fees low, invest for growth and promise not to touch it until you are 591/2. And don’t mix it up with any of your other old IRAs. You might get another new job at a company that will let you bring the pension account along.
