Not long ago on this podcast, I made a recommendation that you consider whether doing nothing might be the right call. And this is in contrast to the common recommendation that we hear to be action-oriented. I would argue that it's not necessarily incompatible with an action orientation, but it is a challenging thought that we can consider that doing nothing might be the right choice. In today's episode, I'm going to follow kind of a similar pattern. And challenge the common advice that you might hear in your career. Common advice you might hear from your manager or your peers, or that you might hear from some inner voice. And this advice gets especially loud usually once or twice a year. For most companies, this is twice a year. For some, it's once a year. It's an annual performance review. This is when the advice is the loudest. And the advice sounds something like this. Do your best to get the best possible performance review you can. And this advice quickly morphs into extend yourself. Put a lot of energy into your performance review. Try to get incredibly good marks. Because this is when you're going to get the best possible performance review. This is the ultimate path to growth in your career. Before you take my words as something that I'm backing, this is not what I believe. I don't think that the most important thing in your career is your performance review. And I'm going to break down why, both from a data perspective, but also from a qualitative perspective, why this is bad advice. Before we dive into that, I want you to recall the last few years. The last performance review that you had. Try to remember the advice that your manager gave you. Try to remember the feedback that they provided. Or maybe the criticisms that your peers provided. Try to remember the wins that you identified in that performance review. These things are not insignificant. Don't hear me incorrectly. But my guess is, if your performance review played out like most performance reviews play out, the gathering of feedback by your manager, the adding of feedback by your peers, a lot of that probably was rushed. A lot of it was probably somewhat applicable, but localized to the time period around the performance review. Performance reviews, despite the intent, tend to be a snapshot more than they are a comprehensive review of your actual performance. if you're a performance reviewer, if you're a performance reviewer, if you're a performance reviewer, you're going to have to be a little bit more careful about how you're going to perform over time. So you might be thinking, well, it doesn't really matter. I'm not necessarily trying to optimize for my real contributions. That's fine if my performance review doesn't matter to that, but it does matter to my income, to my compensation, to my ability to earn. We're going to take a look into that right after we talk about today's sponsor. We're going to take a look into that right after we talk about today's sponsor. We're going to take a look into that right after we talk about today's sponsor. We're going to take a look into that right after we talk about today's sponsor. Unblocked.com. That's G-E-T. Unblocked.com. Thanks again to Unblocked for sponsoring today's episode of Developer Tea. If you are like most people, you were probably disappointed with your last performance review. In many ways, we kind of set ourselves, up for this. We imagine that our performance, which is mostly seen by ourselves, is absolutely clear to our managers, and that the value that we self-perceive that we've added to the organization is agreed upon by the organization. And finally, that we will be fairly compensated as a result of that. These are a bunch of assumptions that we make about how performance is important. And how our merit increases work versus how they should work. It's a reasonable idea for you to pause for a moment before we move forward and try to guess what the average merit increase is. Now, we're talking a little bit about numbers here to kind of make a point. And we're going to dive into just a few numbers. This should be very simple math. The average merit increase in the United States, for the year 2024, according to a study done by Mercer, is 3.3%. And in theory, these increases are separate from the increases that you would get for an adjustment, like an adjustment in inflation, or a raise as a part of a market adjustment. So if you were to look at your merit increase, separate from any kind of market adjustment that you may have received, then you're likely to, center close to that 3.3% mark. But most companies who do merit increases do so in some kind of graduated fashion. And this is specifically related to some kind of rating that you're likely to receive in your merit cycle. All of these words might be used slightly differently in your organization, but the concepts should map relatively similarly. Everyone that does this does it a little bit differently, but there are a lot of common practices that many organizations, practice like, for example, having a multi-part, a kind of merit cycle evaluation. And this usually means that you have multiple scores that get, put into some kind of math to identify your final outcome score. And sometimes these scores are based on, you know, how well you adhere to company values versus your delivery capacity, so that high performers in either of those categories can be compensated. And then high performers in both of those categories, can be compensated. And then high performers in both of those categories get compensated even more. This is the basic idea of merit-based pay, merit-based compensation, merit-based raises. The idea is that you want to reward, as a company, you want to reward the performing employees, so that others will be incentivized to perform as well. The best case scenario for this kind of merit-based reward system, is that the high performers are making better decisions, perhaps they have a better base level of talent, and there's a little bit of luck thrown in there as well. They happen to be in the right place at the right time, for an opportunity to land in their laps, and they capitalized on it. This makes sense, but it falls apart in reality very often. And we're going to set aside roles for a moment, that have a direct correlation of, let's say for example, sales performance, these are quantitative methods, that determine merit and merit compensation. And instead we'll talk about roles like software engineering. With a software engineering role, the hope is that the merit increase, reflects the value that you've generated for the organization. But so often, value is difficult to determine, especially in a role like a software engineering role. This is because, there's no one unit, that's going to determine the value of the organization. There's no one unit of value that we use. And so, everyone in that chain of determining your merit, the people determining whether you should get a higher rating or not, all of these calibrating steps, all of them are interpreting the relative value, that you have produced for the organization. And so, the first problem that occurs with this system, is that one person's value, or perception of value, that you've generated, could be very different, from another person's perception of value that you've generated. Perhaps the most insidious version of this, is value aligned to effort. In other words, how hard did this person work? It's possible that, you are an incredibly efficient developer, and you make very good decisions, and so, you don't have to work very hard, in the traditional sense. You're not pulling long hours, you're not working hard, you're not having to do, you know, weekend, you know, death marches, or anything like that. You get your work done, and you're very good at it. And, compare that with another engineer, who may get the same amount of work done, the same amount of monetary value generated for their organization. Once again, it's very impo- it's nearly impossible to measure that, but let's imagine that we could measure that. Let's imagine that that other engineer has gone over, and above, and beyond, every week. That they stay 30 minutes late, and they arrive 30 minutes early. They work some Saturday mornings even. Let's say they work 5% or 10% more than you, but they still are delivering the same value, the same business value. What is the right decision to make in this case? Do we increase their merit, or should they be equal to you? The person who has the most money, and the most money, and the most money, and the most money, the person who has generated the same value with less work. Most rational people would say that these two people should receive the same, uh, merit increase. But the difficulty here is that we have that magic measuring stick, the ability to measure the value that both of you have generated. In the absence of that magic measuring stick, many people substitute effort for value. They substitute difficulty, or pain, or some other metric that shows this person's commitment. So what am I trying to say here? Far be it from me on this podcast to say that you shouldn't work diligently, that hard work doesn't pay off. I certainly do believe those things. But through this specific mechanism is not typically how this hard work will pay off. Let's look at a few simple numbers. If we take the 3.3% average merit increase, and we modify that, we say, okay, what about the high performers? Let's imagine that those high performers are generating more value. Well, in many systems, the difference in merit increase is only a percent or two. In other words, your base salary, if you were to be right in the middle, would be a percent or two. Let's say that you hit exactly that average, that 3.3%. Let's imagine that you are a high performer. Maybe you get 4% or even, optimistically, 5%, 5% raise. What does that mean in actual dollars? To answer this question, I turn to my trusty companion, Google Sheets, to run a little simple simulation. So the parameters of this simulation are simple. We're going to run the simulation for nine years, and each year, we're going to have two employees that we are modeling. They both start with the same base salary, let's say $185,000, and their band caps out at $230,000. So this means that the maximum that you can get paid in this role is $230,000. Person A, let's call him Bob, and Person B, we'll call Tracy. Bob is the 3% middle-of-the-road performer, and Tracy is the high performer that's getting 5% merit increases every year. So we want to compare these. We want to compare their kind of investment in order to accomplish this. So we can imagine that Bob and Tracy, they both start with $185,000. They go for nine years. For Bob, he's going to reach the top of his band in that ninth year. So at these 3% raises, 3% on base, which means that whatever your 3% raise is this year, 3% next year would be more. It would be more because you're working from a larger base. So 3% on 3% year over year, Bob is going to reach $230,000 by year nine. Now Tracy, Tracy also reaches $230,000. She does it year over year. So she's going to be able to reach $230,000 by year nine. She does it year early, right? She does it one year early. And then of course in the ninth year, she's going to be paid the same amount as Bob. And we can adjust this even if we didn't have a band cap here. So we could talk about what that would mean. But the, so, so we see one main difference is that Tracy's going to get paid a little a little bit earlier. How much more you're probably asking when we were in the math on that as well, 26,000 over, over the first year, over the course of the entire nine years. Okay. $26,406 and 45 cents. Not that that part matters, but that is the difference. Okay. That's the sum total difference over the course of nine years. Now on average, on average, that's about, that's a little less than $3,000 a year. Okay. So, so this is, and this is, this is real numbers. These are ranges that you might expect for, that you might expect for a senior engineering, you know, senior engineer band. So the maximum difference is, and this is before, you know, any taxes or any kind of fees or anything like that are taken out the maximum difference on average over nine years. Now recognize that the pay band has a significant effect on these numbers. In fact, if we looked at this without a pay band, Tracy's pay jumps to 238,000 in the ninth year. Now, what does this matter? It matters because what we're trying to build here as a case that these merit raises are not the main factor. One of the, one of the bigger factors is the ceiling. What is the pay band that you're in at your company? So your merit being 3% versus 5% probably isn't going to affect your longterm earning capacity as much as your pay band does, right? That's one insight to take away from this, but I want to talk about the flip side. Yes, but I want to talk about the flip side here, which is the investment. What does it take to actually get to this level? If we use what we talked about previously, the substitution of effort for value, which is the most common situation. Let's imagine that over the course of these nine years that Tracy is averaging one extra hour of work per day. All right. She's coming in 30 minutes early and leaving 30 minutes late. And we'll also say that the company has a fairly generous time off policy that you get about four weeks of time off. So you're working for about 48 weeks per year rather than 52. That means that Tracy is working an extra 240 or so hours per year. And in fact, if we divide that by eight, a normal working day, that's 30 extra days of effort that Tracy is putting in. Over the course of nine years, that math works out to 2160 hours or 270 extra days of effort that Tracy has put in. Of course, it's not 270 actual days, but the time is exactly that much. The amount of time that Tracy is putting in at work is that much more. So that little bit of extra effort, that extra mile that you're going to, that you're trying to reach as high as you can on that merit increase, that might be the cost of that 30 days of time per year. So it's worth considering. Is that worth it? Well, if we look at how much extra money, just money that Tracy is making, then we can find out about how much per hour that extra effort is worth. Let's imagine that the difference in earning power between Bob and Tracy is what Tracy is getting paid per hour, that she works in addition to what Bob works. So in other words, the 240 hours per year is gaining Tracy something like $2,930 per year. This works out to be about $12. $12 an hour of compensation for the extra time that Tracy puts in. That is what the merit increase is providing. Now it's very important for me to follow up this long tirade, I guess this simulation discussion. I want to follow it up with what I think is a more hopeful outlook on this concept of merit-based opportunity. See, I don't think that the merit cycles with your company are what you should focus on. Companies are very rarely going to pay you the equal dose that you have provided them in effort and in value. This is because the whole operating model of a company is to make more money than they spend. And in other words, you should be producing more value than you are getting paid. Hopefully this is not your first time recognizing that reality. The truth is that software engineering is a very complex and complex business. Software engineering is a pretty high paying job to begin with. But your biggest opportunities are in growing your career along its axis rather than within a bucket. What do I mean by that? There are two ways that you will grow on your career axis. If you care about earning power and that is your primary goal, the optimization you should be looking at is these two things. First, a promotion. It's very important to note that I don't mean a promotion in the sense of a promotion. It's a promotion in the sense of a promotion. It's not a promotion in only responsibilities, but rather a title change. And that comes with a band change. This not only increases your earning power immediately, but it also increases the headroom that you have in your earning power. If your band increases, then you have a higher headroom opportunity to move up in that band. You may go from being near the top of your band to being near the bottom of your band with a pay increase. This means that whenever the financial department at whatever organization you're at gets together and they look at the equity in role, what that means is that they're looking at all of the people who have the same title as you as a cohort, and they're looking at how those salaries match up. In other words, you're doing the job as these four or five other people, but your salary is five or 10% lower than theirs. They are more likely to try to bring your salary in the band. They're more likely to try to bring your salary in line with other people that have the same role. This is devoid usually of the historical context of your previous pay. A similar opportunity to promotion is moving to a new company. Now, I don't recommend job hopping necessarily as it presents a potential risk for employers who care about your longevity and commitment. If you have a history of moving every two to three years from one company to the next, then they should expect you to move every two or three years from this company as well. But the truth is that moving jobs relatively quickly is a more normal thing now than it was even as short as 10 years ago. Moving jobs could represent five or 10 or even more percent increase in your base pay, and moving jobs also tends to give you better experience spread overall. So these two moves on your career axis are a better way to invest your time. Of course, if your goal is to optimize primarily for your financial outcomes. So why is it this way? Well, there's not a single clear answer as to why merit increases tend to work a little less efficiently for the worker than a promotion or a job change. It seems like a company would want to retain individuals rather than encouraging them to hop jobs based on some inequity from what they can get here versus another place. But my guess is, and this is purely speculation, it's likely because of inertia. Many people get comfortable where they are, and they imagine that the opportunity that they have at a merit cycle is somehow equal to the opportunity they would have on the open job market. That their employer has some kind of perfect information, and the perfect information is used in an algorithm to determine the pay for that person. The reality is so much different from this. If you've ever been a manager, you know that pay can often be decided in a moment's notice. And so you can imagine that, your opportunity to get paid better, your opportunity to grow your career, more often than not, is not going to be during a cycle where everyone else is getting evaluated at the same time. But instead, your biggest opportunities are when you see a specific need that you can uniquely meet. This is what tends to be the reason for a promotion, and it's also what tends to be the reason that a company hires you in a new role. Thanks so much for listening to today's episode of Developer Tea. I hope this helps you think differently about your next performance review, and maybe take that 30 minutes in the afternoon back so that you can recover that 30 days per year. Perhaps invest that 30 minutes into your career development, looking for your next role, or at the next promotion, or maybe just spend that 30 minutes doing something that you want to do. Thanks so much for listening to today's episode of Developer Tea. Thank you again to today's sponsor, Unblocked. Your developers already know how to write code. That's not where they're getting blocked. Where they're getting blocked is they miss the context to know what to write. And Unblocked gives engineering teams the answers they need to get their jobs done. That is the context. And they can get that context without having to wait on or interrupt their teammates. Get started for free at getunblocked.com. That's G-E-T unblocked dot com. Thanks so much for listening to today's episode, and until next time, enjoy your tea.