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Mar 11
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When an hour is worth more than an hour: calculating your hourly rate

Some industries are known for their brutal work hours. For example, if you’re a service provider involved in helping large cap companies with their M&A transactions, it’s likely that you’re not a stranger to the 100+ hour work week. Although the remuneration for these jobs is usually very high relative to other occupations with more reasonable hours, cash compensation is often normalized by converting it to a per hour metric. Take your salary+bonus and divide it by an estimate of the number of hours you work per year. If you work 50% more hours than your peer but only get paid 20% more, your peer is actually making 20% more than you when you convert it to an hourly rate. Of course, absolute remuneration still counts for something – if you are making 20% more per hour, but are limited in the number of hours you can work, you can’t really take advantage of that better rate to make more money. And salaried workers don’t get paid by the hour, so the question is moot – you can’t make more money in your job by working more hours. You have to use the extra time you have to find another source of income.

But back to the idea of calculating an hourly rate. On reflection, I think that this simple calculation doesn’t take into account quality of life considerations. After all, an hour of work spent between 3-4pm is a lot different to an hour of work spent between 3-4am. It’s far less enjoyable when you’d rather be in bed, for one (I always say, I don’t care how much you enjoy your job – it’s hard to enjoy anything at 8am when you’ve just pulled an all-nighter). To account for this, we need to assign a greater value to time which is outside of “normal” working hours. For example, outside of the usual hours most people work, say 7am-7pm, you start to give up things that most people don’t. Dinner with friends, your own free time, sleep, and, potentially in the long term, health. So, if you work from 8am to 11pm, that 15 hour day should actually be considered to be worth more than 15 hours, because at the end of the day you begin to sacrifice things that most others don’t. I think there needs to be a graduated scale, with abnormal working hours being weighted with a multiplier.

One model of this could be as follows:

Time Multiplier Notes
7.00am-7.00pm 1.0 Typical working hours
7.00pm-10.00pm 1.25 Giving up free time for meals, socialising
10.00pm-1.00am 1.33 Giving up free time for R&R, hobbies, etc.
1.00am-7.00am 1.5 Sacrificing sleep
* Additional 25% added for weekend work during these hours.

 

For example, if you typically work a 70 hour week, with 12 hour days from 9am-9pm and 10 hours on the weekend, then each weekday would actually be considered to be a 12hr 30min day, and work on the weekend would count as 12.5 hours, giving a total of 75 hours. Another example is if you pull a 9am-3am day, the 18 hours actually counts for 22h45m (12h + 3h45m + 4h + 3h). The result is a decrease in your effective hourly rate of compensation.

The numbers I have picked are arbitrary, but my main point is the concept. Ultimately if you genuinely love your job and there’s nothing else you’d rather be doing (as is the case with many entrepreneurs), the hours don’t matter as much. However, weighting hourly calculations this way is a good way to quantitatively factor in other important things in life, like health, relationships, and so on. Different people may choose to weight numbers differently depending on what’s important to them in life. The next time you try and figure out if a job has really been “worth it”, consider the quality of the hours you’ve had to give up.

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