Does Higher Pay Equal Lost Productivity?

We all like to think that the more money you make up front, the more productive you are. That’s not always true and there are many reasonable arguments for both sides of the debate. How do employers make sure that their top-end employees aren’t just ‘checking out’?

To begin with, in these tumultuous economic times, today’s compensation model is not the same as tomorrow’s model; nor is it the same as yesterdays’. Over the past two years, employers have had to make tough decisions in keeping their good people, keeping their investors happy and just keeping the doors open. Those choices have included consolidation of branches and employees, lower inventory counts and dramatic cuts in employee’s wages and benefits.

In the past, employers were all too eager to throw all kinds of money at the ‘producers’: those who can make an immediate economic impact. Obviously, their ROI was very quick and measureable. Let’s fast-forward a few years and those same employers have a much different outlook. They want a virtually guaranteed return before even considering bringing on someone; no matter what the wages are.

We have been directed by our clients that ‘just filling positions’ are no longer the norm. Searches have been made more difficult lately. There is not a shortage of qualified candidates. The most difficult issue right now is compensation. Employers routinely want the best for the least and candidates consistently want the most. Period.

While we can examine both sides, the toughest part of negotiating recently is convincing potential candidates to look at the big picture while they are considering modest offers. No one can deny that any particular person is worth X amount at any given time. What is difficult is trying to convince someone that now is simply a different time.

We now try to encourage people to look beyond the initial offer and peer into the future of potential earnings. Employers now are not as eager to throw out the ‘big bucks’ to attract talent. Instead, they want those people who are, wait for it, ‘hungry’: new employees that are excited about a new opportunity, who also want to be a part of a winning team, who are entrepreneurial and want to drive success. That’s what we now hear every day.

Companies want to see action. They are afraid that if they spend top dollar for someone new, then the new hire will have no motivation to meet, much less exceed expectations. This potential lost productivity is what scares employers the most.

How do both sides ensure that the new hire will give the 100-110% that is expected of them? Here are a few ideas:
1. Both sides negotiate a reasonable base salary.
2. Both sides agree on a comprehensive bonus/commission/profit sharing plan.
3. Both sides agree that if those agreed-upon expectations are not met by a specific timeline, then the
‘extra pay’ will not be paid.

Even with existing employees, the above guideline can also be used to ‘motivate’.

Companies are happy to provide ‘extra pay’ to those who earn it. It is the most basic form of motivation that there is and has been around for centuries. If employees can meet their goals, budget, etc. then they deserve to be compensated for their work.

This brings us back to the higher-paid employees. This is not to say that everyone who has a high base salary is a slacker; far from it. But, we must be realistic in that there has to be some kind of motivation for some people to actually do their work. Simply having a job nowadays doesn’t work, even with today’s ~10% unemployment rate. Companies have had to come up with options to inspire, stimulate, enthuse (or whatever action verb you want to use) their people, whether sales or management.

There have been other motivational ideas in previous columns from extra time off, to new titles, to new office locations, amongst others. And what is important to one is not the same to another.

Part of our job is to find that happy medium that works for both sides. Maybe we can convince a candidate that taking $10k less up front will result in a $30k payback within 12-18 months; as long as it is made clear that the potential is realistic and not unreachable. Maybe we can encourage the employer to kick up the ‘extra pay’ a couple of notches to make things interesting, e.g. instead of a 15% top end commission rate, perhaps 17% is doable with a lower base, or how about if a potential bonus of X dollars is sweetened if numbers are met. We are now seeing the stubbornness of both the employer and candidates where each side is holding their respective breaths and waiting for the other to exhale.

No one is expendable and anyone who ‘checks out’ might be finding themselves ‘checking out’ the want ads.

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