Don’t Pay For Performance

I use a radical hiring ideology: pay the most we feel a position is worth.

In other words, when I look at an open position, the question I ask is not, “What is the cheapest we can get someone for?” It is not, “What is the competition paying?”. The question I ask is, “If we found the perfect person for this position, someone who will knock it out of the park and make our team even better… what would I be willing to pay that person if she was the world’s best negotiator? What is the price she would command?”

That’s where I start. Then I do a deep-dive compensation analysis of the market, the cost of living, unemployment rate in the area, etc. and adjust according to what we can afford.

This flies in the face of nearly every employer I have ever worked for… and it has been an incredibly successful approach.

There is a fundamental breakdown in the way employers approach hiring. Most companies have an entrepreneurial philosophy–start with a lower wage and reward performance as people help the company grow.

It makes sense on its face, especially in Sales. If you drive the business and bust hump, you will reap the benefits of “unlimited earning potential!”. Except there is no such thing. You might as well offer free unicorn rides to your potential hires… and they know that is what you are offering.

Performance-based pay generally breaks down in at least two ways…

1.  Potential hires know if it sounds too good to be true, then it probably is. If I could simply out-work my fellow team members to enjoy the laurels of success, then I would already be a multi-millionaire, and so would most of my friends. The fact is performance based pay is presented as a carrot when it is actually a stick. The target to success is a moving one (sales quotas always go up, never down), politics become involved, and, quite honestly, most employees do not understand how the financials of a company work–they just know the company made X millions of dollars last year and they made X thousands.

2.  When you start with a lower base-pay, you lower the quality of people in the running. This is the big one that most employers miss. You might have a starting pay of $8 per hour but you know that a decent employee will end up making $23 per hour if they are good at their job and earn bonuses. The problem is, the person you hired applied for an $8 per hour job. They didn’t do the math. They don’t know how your bonus structure works or what obstacles might be placed in their way. You are hiring the type of person who applies for an $8 per hour job. Why not hire the type of person who applies for a $23 per hour job from the start?

 

I get it. Most companies were started by, or are run by, entrepreneurs at heart. They are the rare few people who find a way to succeed no matter what. They see the world in a unique way and leverage their vision and nearly limitless drive to make things happen. Their folly is they assume the rest of the world is just like them. They assume that a meritocratic salary structure that rewards performance will automatically weed out the weak and reward the best in their best people.

Sometimes it works. There is always a diamond in the rough waiting to be found and developed. Here is another approach to consider, though:

Find the people who are already top performers and hire them. The guy that is already earning $23 per hour is not looking at jobs advertised at $8 per hour “with unlimited earning potential!”. He is looking at $30 per hour jobs. He has already put in his time to prove his value. He is already successful and motivated–that’s how he got to where he is. With rare exception, he is not looking to start at the bottom again.

If your hope is to find a total rock star employee, then start at the top–where they live, not the bottom.

Or better… don’t. I like not having to compete for the best people.

 

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