“If we give the annual cost of living increases, our payroll’s gonna skyrocket. So how do we judiciously make sure that we’re addressing the compensation issue? Obviously, there’s qualitative stuff that we have to do as good managers and executive leaders to create the right culture and the right atmosphere for success. How do we look at the compensation component while not breaking the bank and having a CFO like me go bananas, because all of a sudden, you know, our, our pace of payroll is, is triple that, of the growth of our revenue?”

The Other P&L: Podcast Section (Scott and Aaron Episode 2 Part 3)

Aaron: (00:00): Here we go. So Scott a lot of times we have to deal with the big broad idea of retention. And so I thought maybe as we look at a, a discreet example, all right, so, so let’s say I have an employee. The good-solid performer says, Hey, Aaron, you know what? I got a new job. I’m gonna be making an extra 15 grand. And so I, I call a timeout and I said, hold on, we value you a lot. Let me go get the big, bad HR guy. And let’s see, you know, if we can make something happen. And so now I’m face to face with you, my HR partner. And I say, Scott, I really like this, this individual. I, I would love to give him a retention bonus. I’d love to give him some sort of consideration. How do you react to that?

Scott: (01:00): Well, I would, I would just get curious about it, first of all, Aaron. So my, my question to you would be from your perspective, do you think it’s, what’s really prompting him or her to look at this other opportunity, right? Is it, is it a career, career path, and by the way, have you defined a career path with, and do they know what the career path is either up in the organization or sideways at learning new skills and experiences? Number two, I’d ask if you felt that you were paying them a competitive wage. And of course, I would look at salary survey data that I have access to to see if they are, and if you haven’t made a pay adjustment to make, keep them competitive in the market and pay them a fairway, shame on us, right? Shame on you, shame on me, right?

Scott: (01:49): For not having caught that. And then the third thing is what, you know, to, to really understand what’s driving it. And this kind of sub-issues is that their team is that in interacting with a very difficult leader in another group that they must support, right? What is it? Is this a personal move? It’s for example, some people will wanna take another role because it’s closer to where they live. The commute. If they have to be in the office is gonna be less, or it might be a benefits issue. Hey, they offer tuition. So I think that every loss of a person or every person that says, Hey, I’ve got this other offer is a learning experience for us to know what a is motivating our employees, B what our competitors and the, and the workforce, how they are trying to hook some of our employees to go to their company. And number three, just to make sure that we ourselves are being fair and we’re providing a really good work environment for our employees.

Aaron: (02:58): I think all of the above, you know, it is just awesome. And, and we, we talked in, in a prior segment about being a manager, right. And not just, Hey, well, you know, you happen to work for me. And, you know, I expect things to get done, connecting with people and understanding and meeting them where they are not to of saying, okay, Hey, you have task one through 10, are those getting done? But how are you viewing this as being a success? Right. So that, that qualitative thing of do, I like my job,

Scott: (03:30): Or how can I enable someone to like their job that goes quite a, quite a ways? Right. And, and simply throwing money after something thing. It’s not always the right answer. Obviously. I think there’s, and you’re probably more well equipped than I am to answer this question, but I think there are studies that say, Hey, if you give, you know, some sort of one-time pay increase, that only go, that the longevity of that is, is very short term. Maybe even measured it as much as 12 months. Right. I had a friend recently who had an opportunity to go with another company and their current employer offered them a retention bonus or offered them a pay increase. Right. And I advised my friend. I said you know what, go to another company because they’re reasons that you consider that in the beginning are still there. You know, it’s a better opportunity for you. You have a better leader, it’s a better team. There’s more, it’s a better culture. And I said to them, you know, what, if you stay in your current company that company’s probably gonna have an opportunity then to replace you and they will actively go out and try to have somebody else replacing you in your role because they know that you’re probably gonna leave eventually anyway. So there’s that this loyalty factor also.

Scott: (04:53): And so, the employee decided to go with this other opportunity and it wasn’t necessarily for the pay. It was for the culture. It was for working for, for a really innovative leader and being part of a great team.

Aaron: (05:07): So, yeah, and in some in, in different stages of my career, you get, you get a little more experience as time goes by and you realize, Hey, look someone, Hey, they have some wings. And if we can’t give ’em that opportunity, God bless have, ’em go be successful. And, you know, never to begrudge, someone, for looking out for their own career. That’s awesome. But, but obviously, too there are different influences that we’re seeing now, right? Inflation starting to put a lot of pressure. So if I’m, you know, an employee that’s been somewhere for five years, just through the mechanics of how things normally work, the cost of living increases, aren’t always expressed every single year, much less are they even pacing with inflation, much less what the market bears for that particular role. So here’s my question to you, Scott is how do we, within our employees, and as the company grows, the payroll grows.

Aaron: (06:12): And if we give the annual cost of living increases to our payroll’s gonna skyrocket. So how do we judiciously make sure that we’re addressing the compensation issue? Obviously, there’s qualitative stuff that we have to do as good managers and executive Le leaders to create the right culture and the right atmosphere for success. How do we look at the compensation component while, while not breaking the bank and, and having a CFO like me go bananas, because all of a sudden, you know, our, our pace of payroll is, is triple that, of the growth of our revenue?

Scott: (06:52): Yeah. So, I look at it not only from a cost of living and standpoint, but I also look at it from a perspective of what the market wages are, and there’s gonna be certain skills and experiences that a higher there’s higher demand in the market for those. So for example, developers, very high demand, data scientists, very high demand, SREs, very high. And there are certain skilled traits that are also very high demand right now, carpentry, you know, whatever, whatever you think, you know, what those positions are in your organization, you know, what’s, what’s in high demand right now. I absolutely feel that organizations should be making market adjustments throughout the year, not just on the annual review process or annual merit. It should be throughout the year. There should be an additional budget to make proactive market adjustments for those high-demand skills. Because if you don’t and you stay on the traditional path and tradition of an annual increase, that’s two to three and a half percent, you will absolutely lose those people. But on the other hand, if you are proactive and you pay and you make those adjustments to their salary, they are more likely to stay with your company. And I think it’s just 101, right? Even if a department has 10 people, they lose one, they decide to, you know provide the workload or divide up the workload within the remaining nine. And you give the remaining nine a pay increase that’s equal to the amount of the person that left. That can be very impactful also.

Aaron: (08:41): That’s right. I, I think one thing that, that we should explore in a, a separate segment as well is, is that of the non-cash, or maybe, and I’m not talking about, Hey, you know, working from home versus not working from home because there’s some indirect value for, Hey, the gas money and the convenience, if I’m able to work from home, whether that’s on a partial basis or a full-time basis. But I, I think other levers too, we have to be judicious as to the nature of the employee. I, I think, I think you say, okay, Hey, here’s a superstar. Here’s someone that really, if, if they left, it would be painful. We think they’re very, they have a huge upside and we can help, you know, they can help us grow. We can help grow their career. Thinking about, less, about salary, more about, okay, are there certain types of equity or synthetic type of equity programs? We can put this person on so that as the company does well, they do well as, and, and so that they not just perform, but they are incentive to overly performing because they now have skin in the game.

Scott: (09:53): Absolutely. Well, that skin in the game is important. As long as they really feel they have an impact on it, right. If they don’t really feel, they have an impact on it, whatever that goal is, it’s not really gonna be an incentive for them. You know, you reminded me when you were talking about perks and benefits that I heard a story, a while ago, and it was from a leader of another organization and they paid people at, you know, the 15 percentile. But one of the things that they get that they did is they gave the executives a free lease car brand new for two years, every two years, they got a new lease car, but yet they paid the people from a salary basis lower than some of the other companies that we’re competing for talent for similar jobs, but they retained these people and they gave a lease car to now, the interesting thing about it is the people, these are executives, right?

Scott: (10:48): So they know financials, they valued intrinsically the value of that lease car, that free car, they valued it probably 20 to $30,000. The cost to the company was five to $7,000 a year. Including insurance and maintenance on it, right. Go to your average dealership, you know, pick up a BMW or a, whatever you want. Right. Mercedes it speaks between, let’s say six, maybe 10, right. Depending on what you get. But it was interesting to see how people think about perks. So for example, tuition reimbursement, what’s the value that people perceive. And what’s the actual cost. Google does something very unique where they say if you work for Google and you pass away, they will continue your salary at X percent for 10 years or so. I forgot what it was. Right. But it’s incredible now. Yes, it does cost ’em some money to do that.

Scott: (11:49): But with insurance, I don’t know, I’m guessing what $500 an employee max to have that kind of benefit. I don’t know, but let’s think about that. The employees and their families value that at such a higher degree than what it’s actually worth and what it cost. Right. And so they’re able to hold on to people. And even a, if another company came to Google or an employee that works at Google and says, Hey, look, we’ll pay you 10%, 20% more than what you’re currently making. The person says, well, I wouldn’t wanna do that because I’m gonna lose this life insurance for my family. That’s gonna pay them mostly my salary for 10 years. And so it’s not all about your salary compensation that really drives the decisions that people make when they, and their perception of overall benefits and compensation.

Aaron: (12:45): That’s fascinating. I think the least car, perception, the perception gap versus actual, I think, I think the other layer in there too is you know, these are post-tax dollars, right? That, that people kind of, maybe, I don’t wanna say conflate, but, you know, Hey, if I get a, you know, insert favorite car, right. If I get a new one of those per year, you know, there’s some value, you know some great value to that, just from an idea of, Hey, the two years up, I’m gonna get a new car, right? And that’s pretty cool. And, yet, you know, like you said, well, just go down to your favorite dealership and, and then, just that, maybe not having that experience. I don’t know. I find that to be very fascinating that the perception much less, I think it, it does come down to like some of the branding of a company, right. Is, oh, well, you know, if I look at the list of all the perks and this one has a list of four, and this one over here has a list of eight, well, maybe five through eight are not that in. Or, you know, don’t have that much, but look, I’m able to look at this and this one has a little bit more.

Scott: (13:59): Yes. So a couple of examples that are not as radical as the lease car is companies are offering a vacation allowance, right. To their employees, Hey, here’s two weeks and $2,000 every year, you get to go off and do whatever you wanna do with that 2000, there is a value to that, right? That people put much more than what it really, what the cost really is. Other companies that are doing sabbaticals, Hey, you stay with a company for five to seven years. Guess what we’re gonna give you paid vacation time off for five to seven weeks to do whatever you want. You go do it, disconnect from the company and, and recharge yourself and come back, you know, an entirely in-person ready at rock and roll. Those are two examples of benefits that are out there now that are innovative. That catches people’s attention, by the way, those benefits are critical in those perks, in terms of any company, trying to get the best place to work award, right? A lot of cities have a hundred best places to work. Those are some of the things that companies do to make sure they’re on that list. And the cost is really not that much when you really figure it out with retention and engagement and product activity and all that stuff.