Navigating Employee Compensation

These are the things I've learned about paying humans, most of which I didn't absorb until some time after I was managing them.

The two groups of employees who are typically overpaid are those who have been with you a long time and those who know what other people make. For those who have been with you a long time, it happens slowly, on a yearly basis, as you compound the seemily mandatory increases. For those who know what others make, you can include financial controllers and co-managers (the individuals in the middle layer). Here's how your thinking might go: "Well, I just paid myself a significant bonus and so he knows that I have money." Or, "I just gave a raise to her peer and she'll surely find out."

There are five issues more important to good employees than money, and when they talk about money is when some of those five things have eroded over time. Employees who feel like they are underpaid are brutally forthright about it, with you and everyone around them. That's just true, but here's the surprising thing. After surveying and interviewing nearly twenty thousand employees in this industry, I've rarely encountered it. You may be more sensitive to this issue than employees are.

The corrolary point: if >20% of employees express this concern, the fundamental issue isn't pay but rather culture. Asking for more money usually masks an underlying issue that more money will only make worse, not better. So why is salary the language of deficient culture? Because it's easier to talk about, but also because the overriding issues that keep employees happy are no longer present because you've screwed up. Maybe it's hiring the wrong people, keeping the wrong people, letting a client run the place, lack of engagement on your part, or whatever. In some way you've screwed up. But fix it with that in mind and not with money.

No employees in the world are mature enough to know what other people make and not read "intrinsic value" into that equation. It just makes unhealthy comparisons too darn easy to make, and we aren't strong enough to refrain from doing just that.

Real power comes from shaping how and what someone is paid. Unless a "manager" is that same person, all they are really doing is making suggestions about projects.

Small, frequent adjustments are better than large infrequent ones. One feature of developed cultures is this unending cry for frequent progress, measured in tangible ways. I am amazed that kids now graduate from kindergarten. What did they do to deserve that? And what message are we sending about such thin achievement?

Seemingly random adjustments are more effective than predictable, staged ones. Predictability is a synonym for entitlement. Surprise people. Shock them. In good ways.

Money is just dirty paper that may or may not have meaning. Don't read too much into the generally accepted exchange of contribution. Your folks are as likely to value great experiences as the newest thing. Sure, money can buy that experience, but why not show them how well you do understand them?

Health insurance, flexible work scheduling, and self-directed deferral are the three most important elements of compensation, in that order. In doesn't even matter if they participate in the third, and don't think they don't want it just because they don't participate, but they must have a chance to set aside their own money for retirement and they must have the freedom to make their own decisions about how it is invested.

Good employees are harder on themselves than good managers. This can be very helpful to you, especially if you aren't quite sure how to initiate that difficult conversation. Just ask how they think they are doing in a particular area, and once they start that conversation, it'll be easier for you to join in, whether you agree with their assessment or not.

Salary ranges are the 8th wonder of the world. They set expectations at the outset, and they give you the freedom to curtail otherwise expected bumps in pay. These should be shared before they join, and it is acceptable for any given employee to be aware of the range for the next level.

Hinting is promising. During the courting process, prospective employees are highly selective about what they hear, and they will never miss some hint you drop about a new program you are thinking about, or about how you'd eventually like to pass the firm along to key employees. Don't whisper to somebody that you don't have any underwear on underneath that clothing.

Yearend bonuses are like dark chocolate with sea salt. Feed your crew a plate each of the stuff and you'll look like Santa Claus incarnate. But next year, they'll only notice if you don't do it, and then you'll be the Grinch. It's no fun to be influenced largely by how you can avoid disappointing them.

Compensation plans can change behavior, but only the ones that don't require a spreadsheet to motivate the right behavior. People simply aren't motivated by complex strategies.

The constant "plan of the year" modifications are more demotivating than trying to get it right. Do your best and then stick with it at least three years.

Paying everyone identically in broadly the same position points to a lack of courage.

The more you attempt to pre-define a compensation plan, the less comfortable you really are at the essential practice of managing people.

It's much easier to have those meaningful conversations during a walk somewhere than around a conference table or eating at a restaurant where ordering dessert feels like a slow death.

The safest source of significance comes from a carefully structured role where good results are easily attibutable, either to one person or a group of collaborators or a dozen other ways.

The positive influence you can have on someone's life is nearly incalculable. This IS your calling. Think back to the bosses you learned from. They might have been stammering, painful communicators, but they spoke truthfully to you, they cared, and they were innately good people in spite of their flaws. When they quit hovering and finally landed on the candid truth, you already knew it anyway and were just relieved that they knew it too.

Fire your few jerks, celebrate the remaining majority, and do great work in the world.