Wondering if You’re on the Fast Track? There Are New Gauges to Read These Days

Q: Whatever happened to that old adage that said if your salary matched your age, you were doing pretty well on the job? Is there some new guideline to help us see where we stand in the job market?

--F.H.

A: Thanks to the rampant inflation of the early 1980s and a host of other significant changes in the American economy and work force, the old salary-equals-age yardstick that many of us grew up with has long since become outdated and has not been replaced with anything as simple. Further, whatever rough guidelines that do exist today apply only to an ever shrinking number of workers in a steadily dwindling number of industries.

For starters, the measurement does not apply to teachers, government workers, entertainers and the increasing numbers of workers in companies on the cutting edge of medical and electronic technologies. It also does not apply to the growing number of self-employed workers.

In general, says Janice Hand, a compensation specialist with Hewitt Associates, a Chicago firm specializing in workplace issues, salary alone represents a declining portion of workers’ overall compensation. In its place, employers are relying on bonuses, stock options, commissions and other “incentive-type” rewards to pay their workers. The net effect is that an increasing portion of workers’ pay is “at risk,” meaning that employees will not receive those rewards unless their performance (as measured by the employer) meets certain standards.

Nevertheless, Hand does offer some benchmarks if you are determined to measure your job success by compensation.

To be considered a member of the fast-track set, a 30-year-old should be making at least $60,000 a year in salary, plus at least 10% more in bonus payments and stock options with a face value of an additional 20%.

To stay on the fast track, a 40-year-old would have to make $80,000, with bonus payments of 20% and face-value stock option awards of an additional 40% to 50%.

For a 50-year-old, the $100,000 salary would have to be augmented with a 30% bonus, face-value stock options worth 60% of salary and a long-term incentive plan that may include some restricted stock purchase opportunities.

As you can see, as workers grow older, the annual salary becomes a smaller piece of their overall compensation.

This formula doesn’t apply to everyone, something for which, as a society, we should be glad. Some of the people on whom we depend the most--notably teachers, nurses, police officers and firefighters--would fail such a fast-track test.

Perhaps more important, such fast-track measurements overlook two key components of any job: fulfillment and satisfaction.

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Q I am thinking of getting a new car this year and am wondering if it makes sense to lease rather than buy it. What issues should I consider?

--R.G.

A The lease-or-buy decision may be among the most complex you have faced.

Unlike the rent-or-buy choice you face on housing, there are no clear-cut tax advantages to sway you one way or the other. So you can’t look to rent-or-buy analysis for guidance.

An important reason for today’s popularity of leases is the price of purchasing a car. With top-of-the-line prices approaching the cost of a starter home in some of Southern California’s outlying communities, buyers have found it increasingly difficult to come up with the money. Further, in most cases the monthly payments for leasing are often lower than those for buying.

However, accountants and other financial advisors argue that out-of-pocket expenses are not necessarily the primary consideration in the lease-buy decision. The important issues, they argue, are when the consumer has to shell out the money and whether he or she is prepared to live by the unique rules of leasing. Leasing, they say, is a financing and lifestyle decision, not an economic one.

More important in the lease-buy decision, our experts say, are a consumer’s answers to the following questions:

* Do you want to pay out a chunk of money for a down payment before driving off the car lot, or do you have another use for the money? If you think your money could be more profitably invested in something other than a car, then a lease might make sense.

* Are you comfortable with having to make a car payment every month, or do you live for the day when your car is paid for? Consumers whose budgets are accustomed to car payments are ideal candidates for leasing, because most experts say the best way to lease is to turn in a car at the end of the contract and start all over again.

* Do you do a lot of driving? Leases are not the right choice for people who put many miles on their cars. Most contracts impose limits of 15,000 miles per year. Any mileage over that is usually subject to a 10-cent-per-mile charge at the end of the contract.

* How long do you want to keep the car? If you plan to drive your car until it dies in your driveway, you are better off purchasing it. Even if you know how to negotiate a lease that protects your interests, you will face a second round of talks when the lease expires--either to finance the remaining cost or to reduce it. It’s simpler--and the outcome is probably the same--if you negotiate just at the time of purchase.

* Are you prepared to stick with the lease for its entire term? Penalties for breaking a lease before it expires can be substantial.

* Are you self-employed? In general, leases are more attractive if your business is responsible for making the payments.

* Are you a tough negotiator? Lease agreements are difficult to understand, and many consumers find it tough to calculate exactly what their agreements require them to pay for a car. Experts recommend that before you set out to lease, you learn to perform present-value calculations, by which you determine how much a payment plan will ultimately cost. Be sure to take your calculator to the auto showroom and run the numbers as the talks progress.

By the way, you should also know that late last year the Federal Reserve Board announced new rules aimed at making leases clearer and requiring standard cost figures and contracts.

The rules will require leasing companies to prominently disclose key elements of the deal, including the car’s cost, required down payment and charges for excess wear and tear, excess mileage and terminating the lease early.

Perhaps most important, at the top of the model lease disclosure form, the leasing company must delineate the total cost a consumer will have paid by the end of the lease period.

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Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, CA 90053, or e-mail [email protected]