why does the salary curve grow exponentially?

[Case]

I'm sure most of us have noticed that salaries grow at an exponential rate as you grow in a company.  This often means that your growth as a young employee is small, but becomes ridiculous towards the end of the career.  And if you ever break into director or executive ranks, than they go from ridiculous to insane.

I understand that employees become more experience/etc... but I am skeptical that on average the older/higher ranked employees contribute that much more value.

Why is this?  What tenant of capitalism fuels this?  Is it simply companies wanting to retain talent long term?  Or is it more of the 'boy's club'? 

This runs counter to FIRE; if salary growth was more linear, then you could hire more competitively.  Though I can understand why a corporation wouldn't want its employees to FIRE.

As I approach FIRE, the benefits I receive at my job will be growing and growing.  I can see how this fuels the one-more-year syndrome.  But meanwhile, as a young employee I'm working my ass off while a lot of the older employees are kicking back and contributing less.

[Morning Glory]

I think it depends on your industry. My salary growth has been linear, with a slight bump for getting an advanced degree.

[Posthumane]

I also have not see exponential growth in my salary. If anything it has been asymptotic so far, with large gains the first few years and then gradually levelling out until I'm basically maxed out in my category and only getting inflation based increases (which actually are less than inflation). Mind you I've been in the same position for a number of years, but looking at the pay levels for higher ranking individuals in my organization, their pay is not that much higher than mine. I work in the public sector though.

[lthenderson]

My largest pay increases were always switching jobs.

But to answer your question, I think salary growth, exponential or linear, has more to do with how hard it is to replace you versus just having more experience. If you work in a sector where there are lots of people with similar experience available, your pay increase won't be as much as the fellow who the company would have a very hard time replacing if they had too.

[spokey doke]

If only!

Academia doesn't work that way, particularly if you stay on the academic side.

[larmando]

One reason for this at exec level might be that exponential is the only way to retain, especially at older ages and for wealthy people. Given time value of money, any wealth accumulated early has a lot of time to grow. Any money earned/saved later has much lower impact on your future life quality, while time acquires more and more value as there's less and less of it. As such the only way to convince someone to stay longer is to every time make sure the wealth delta is sufficient to justify it.

[maizefolk]

Part of the problem is that in many fields it is quite difficult to actually quantify how much value or benefit an individual employee provides to a company or organization (and this is a bigger problem in larger organizations), but it's easier to measure aggregate productivity of groups.

So if you are a hard and productive worker, early in your career it's likely that you're being paid a lot less than you're worth, because your productivity is getting averaged together with other entry level folks, some of whom who are just doing the bare minimum, or who have figured out the secrets of "looking productive," or just really aren't cut out for the job and are struggling to keep their heads above water.

As you get older, two things happen. First, you accumulate a much longer personal track record that makes it easier for people to try to guess how effective you've actually been at past jobs (or at least makes them feel like they're doing a better job of guessing). Second, if you're extremely successful in certain fields you're likely to move into positions where it is going to be easier to assess your productivity individually (or, again, for people to feel like they're assessing your productivity individually, whether accurate or not).

I guess a second reason is that people don't respond well to extreme pay disparities even in the presence of extreme productivity disparities.  A top programmer in the top 5% of their field could easily be 10x as productive as a programmer at the 50th percentile (a programmer in the bottom 5% of their field likely causes more problems than they fix). But it wouldn't be unreasonable for all three to be employed in the same office, and even if the top 5% programmer makes 50% more than the median guy, it's likely to cause a fair bit of resentment.*

Just remember that it's not that all old people make a lots of money, a lot of what you are seeing is the the disparities get bigger as people age. For every 55 year old pulling down mid-six figures, there are a bunch trapped in unpleasant and low paying jobs, or who would struggle to find work at all if they lose their current position.

*Assuming otherwise equivalent titles, skillsets, and ages.

[Case]

I think it depends on your industry. My salary growth has been linear, with a slight bump for getting an advanced degree.

Our promotions are linear % increases in salary, which means the absolute value increase is ever increasing.  But in addition to that, the size of bonuses and stock options gets bigger as well.

[brian313313]

There are many different stories for different companies/sectors. Here's mine.

I'm in the tech field and have about 25 years experience. I'm considered very good and at the top percentiles. I'm making quite a bit more than the junior guys. There are some things that bring value with experience but in tech only the last 5 years count technology-wise. Therefore, one of the tech guys with about 4 years experience is almost as good as I am technology-wise. Because of my experience and the fact that I've changed jobs a lot, I know my value. He does not and is making closer to what the other junior level guys do. If he demanded more at raise time, he would get it. He doesn't know that. My boss pulled me into an office one day to warn me about discussing salaries. It wasn't mine I was discussing but I made some comment about salaries in general. I pointed out to my boss that this junior guy isn't stupid and he can figure it out so they need to keep up or they'll lose him. The nature of business is to get everything for as low cost as possible. They're not going to pay more if they can get away with not. (Turnover costs too though.)

[Gone Fishing]

When I retired from megacorp, the salary curve was verysteep moving up the ladder. Not just salary, but the stock options/grants, bonuses, 401(k) matches, and pension contributions also piled up.  I attributed it to two things: those in charge will take care of themselves, and the massive step ups served as golden handcuffs based on hope for those below them.  Thing was, the ladder above my level was very narrow, the odds of moving up the ladder were incredibly slim and seemed to be reserved for those that were politically connected.  At one point I think I was only 5-6 steps away from CEO, but, if at all, probably 10-15 grueling years away (and a lot of brown nosing) from the next real step up. Certainly not worth it in my mind!

[marty998]

Agree, salary curve is exponential in my industry. When you start getting into management roles, your responsibility is not to do the work allocated to you, but to hire and develop a capable team that can do more work.

Putting a place a capable team is much more difficult (but much more profitable for the company) than the work any one single individual can do. Consequently, the pay grade goes up.

[Indexer]

Salary growth at the higher end is likely exponential in many industries because the individual has a stronger impact on company profits.

[BlueMR2]

I think it depends on your industry.

Varies for sure.  Mine was the opposite.  I saw large growth initially (10%+) and it's slowed down over the years (around 1% now).