Monday, January 22, 2007

Misleading median income

Suppose your income is at the top 20% percentile. You think your income are quite good?
Not necessarily.

Consider following senario:

You are in a BIG established company, you have a stable income of, let's say, $100k/year.
However, each of your 9 buddies are in a startup company, each only get a $80k/year salary each year.
Suppose each year one of your buddy's company go IPO, then one of them get $1M from stock options.

Then you are one of the top 20% earners among these 10 persons, because only one get higher income than you because of the stock option.
But wait.
After 9 years, you earned $100k x 9 = $900k
But each of your buddies earned $80k x 9 + $1M = $1720k
Now you are lowest one among these 10 persons.