Evolving Compensation Models
It’s hard to imagine anyone objecting to the concept of ‘equal pay for equal work’. But the concept of compensation is much more refined than that, much more complex. Getting compensation right is key to both attracting the talent you need as well as motivating and retaining your workforce.
Traditionally, compensation has been a closed door topic, reserved for managers. And clearly a very sensitive topic because most employees don’t see their contributions and their industry with an objective, clear eye. And let’s face it, who doesn’t want to earn more?
A company may indeed have several, or even many people doing exactly
the same job. Rarely do those employees make the exactly the same contribution to the business and that’s where the concept of ‘pay for performance’ evolved.
On top of that, there are ‘micro climates’ at play, as Gwen Moore
likes to call them -- working in a cutting edge field where resources are scarce or being a well-known creative contributor can create a high demand and competition for that talent and consequently high market compensation.
Mark Zuckerberg famously pegged great talent as 100X better than someone who is good. Do they earn 100X more? Well, that would be pretty rare, but they certainly can earn a lot more.
Our best and most successful clients have, by and large, ditched compensation surveys and have started to pay ‘market’ for talent. ‘Market’ is essentially derived from ‘performance’ and ‘micro climates’. Savvy HR leaders know that the old pay grade bands are pretty irrelevant today as the gap between performers, is widening. It’s not uncommon to see a software developer doing very generally similar work earn $120K to $300K or more, excluding equity. But what technologies they work on and how much they move the needle in creative contribution factors significantly in what they will be paid. That’s a pretty big gap.
Salespeople and Business Development leaders have traditionally been paid commissions that can vary greatly. Business Development leaders at the Director level can earn between $200K to 600K. Million dollar plus paychecks and a lease on a Carrera can be big motivators for a sales force.
Creatives, whether it’s the designer of a fantastic new user interface or the head of Marketing concepting and launching a killer ad campaign also can, and should, make significantly more than others in their profession. It’s not unusual to see a gap of a million dollars or more in equity in these functions. The ‘franchise player’ can put a company on the map and are paid accordingly.
When a company doesn’t have much or any equity, competing effectively and dolling out all this cash may not be feasible. For startups, utilizing precious cash to compete may not be realistic. We’ve worked with a number of companies helping to develop creative compensation models that utilize concepts of retention, self-funding and performance.
Paying what you need to and not more is becoming one of the greater challenges companies face. But consistently getting it right in the hiring process separates the winning companies from the losing ones.
Take a look at what our partners have to say on the topic of money in this quarter’s newsletter. Often mysterious, always uncomfortable, how much you pay and how much you earn is important stuff.