Bean Musing

5-Figure Salary Monthly - The Secrets

2021-07-24personal finance

Based on Google Analytics, my most viewed blog post is Why Is Malaysia’s Salary So Low and What You Can Do About It published about a year ago. Since I am back to blogging, the post is due for an update.

The previous post attempted to explain the structural issues with Malaysia’s employment, which in summary, is due to a lack of high-skilled jobs. Sounds like doom and gloom? Not necessarily.

Let’s get down to some definitions.

What is a ‘high’ salary?

Depending on your age, your qualification, your location, the industry, the magic number will vary. This essay serves only to explain what the ‘secrets’ are behind a high salary. If you’re a school leaver (i.e., what to do after SPM?) and you’re exploring career options, the following will be helpful for you too.

The 4 Principles to a High Salary

Leverage

The first principle involves understanding the cost structure of the industry.

“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world. ” - Archimedes

Recall what we learned in Physics.

The longer the lever and the further the effort acts from the pivot, the greater the force on the load will be.

An industry that is constrained by input (raw materials, factory capacity, financial capital, etc.) has less LEVERAGE compared to one that is not.

Taking the 2 extremes: a company that sells canned food for $5 versus a company that sells software for 5$.

To run a canned food company, you need a factory, you need to purchase the raw ingredients, the cans… To sell more canned food, you need to invest in a bigger factory.

To run a software company, you need engineers who can program; to sell more software, you need more sales personnel.

The situations are overly simplified, but you get the gist. Size also plays a factor in determining the salary. The example is used merely for illustrating the structural difference in industries.

A technology company has more leverage than a traditional company. A large company has more leverage compared to a small company.

While a financial institution is a traditional company, it has similar leverage as a technology company. In the corporate advisory business, hiring 10 people could bring in millions in fees, and you wonder why bankers are paid well. Not all bankers are equal, hence the emphasis on corporate advisory.

The same can be said for business consulting, another high leverage, human-driven business.

Next, we will look at the company cost structure.

As an employee, are you a cost item, or are you a revenue-generating item?

We often hear about sales being a lucrative career. Rightfully so, sales personnel (the ‘front liners’) drives the revenue of the company.

A company does not just run on sales, there are also the ‘supporters’, which ensure the after-sales process runs smoothly. A business owner will always work to ‘maximize’ the revenue, and ‘optimize’ the cost, and that has an impact on the compensation.

There are exceptions, which are attributed to the cost of failures. If a certain support function requires intricate knowledge, failing which will cost the company a great deal, the supporting personnel would potentially be paid a good salary. An example would be the accounting function, particularly if one works for a large-scale operation.

Supply and Demand

Microeconomics 101: in a competitive market, holding all else equal, the ‘price’ of labor depends on the supply and demand. Considering the number of university graduates Malaysia produces every year (the number is 51,000 according to a study done in 2018).

There is a large number of labor supply, hence a majority of the employers can collude to keep salaries low. The market dynamic is in favor of the employers.

Fortunately, supply and demand go through a funneling process. While at the lower level, an undifferentiated graduate may have to suffer the initial stage of low salary, but as one builds the skillsets and occupies a specific niche, the demand for your service will outweigh that of the supply.

Scarcity

As mentioned in the supply and demand section, scarcity of supply drives prices up.

A highly selective employer is also willing to pay more.

In addition, there is another form of scarcity — perceived scarcity, a social engineering technique. It is done by sending subtle signals about you being a highly desirable candidate and it is hugely in demand. I noticed how it was at play when I received multiple callbacks once I let the potential employers knew that I had a few offers at hand. It also provided me with an opportunity to negotiate for a better salary.

While perceived scarcity could work in your favor, overplaying it could also lead to your downfall. In the end, what is truly valuable is what you bring to the table.

Geographical Arbitrage

OR, it is as simple as getting paid in a stronger foreign currency while living in a low-cost country.

Next, the action plan.

The 3 Steps to a High Salary

Do your research

After reading the section above on the principles, do your research on the jobs you’re interested in. There are tiers of companies within the same industry. As much as possible, back the winning horse, though occasionally sticking to the second/third player could grant you the financial reward you’re searching for.

Collecting data on compensation packages is also key. How else would you know what is the industry standard?

Some HR consultancies such as Michael Page, Hays, Robert Walters and PersolKelly also publish salary surveys yearly. Do check them out.

HR consultancies could also help in landing you a high salary job. I will share the details in another post.

Do your research on what is in demand, and…

Upskill

There are many ways to go about upskilling yourself. You can work on getting professional certifications, or you can consider expanding your skillsets into a lateral field. An example is an accountant who also knows how to code.

If you’re interested in learning languages, it could be part of your ‘upskilling’. Some companies provide language allowance if you’re fluent in the said foreign language. Again, refer to step one on research.

Read books and news about your field and keep up-to-date with the latest development.

Negotiate

You can’t get what you don’t ask for, and this is also why the first point about research is important.

We often read about employers reprimanding outlandish salary demands from jobseekers, and that, I’d attribute partly to a lack of research.

In the negotiation table, the dynamic tends to favor the employer. How can you play it to your advantage?

As in the Scarcity section, use perceived scarcity, either through other offers, or the value you add to the company.

Discuss with your manager a clear progression plan.

Ask for an increment or promotion if you’ve hit your targets/goals.

RESEARCH about what a typical increment should be and use it to your advantage.

Conclusion

Understand the 4 principles and make use of the 3 steps. Leave a comment if you have any questions!