Never Make Counter-Offers
bramcohen.com
bramcohen.com
I didn't heed this advice, and took a counter offer (doubling my salary at the time). This seemed like a good deal.
What did I turn down? 10,000 shares of Microsoft stock. In 1983.
Oops...
Salary increases are frequently based on your existing base, so doubling salary in 1983 probably translates into an increased income stream since then, which would amount to a fair take (28 years of 100k income is $2.8 million).
Presumably there have been other stock options since.
If some of that income was saved and invested, there'd be some return on that as well. The Dow and NASDAQ are up about 1100% in this time (MSFT is up 29,900%). Interestingly, S&P 500 is up only 817% (greater diversification doesn't mean better returns).
As with most financial comparisons, there are a number of things to consider. On balance, selling his soul to MSFT in 1983 would probably have been the better move.
Coulda-woulda-shoulda's a tough game to play.
People think there are clear answers to things that in retrospect seem right or wrong decisions after things play out.
Those 10,000 shares of Msft? Well what if you were working for Eagle Computer (I owned one of those and remember that day very well)
People who accept counters are usually gone in a year anyway - they'd already decided to go, management has written them off in their minds, something like that.
Counters rarely make sense. There's probably exceptions, but I've never seen any.
Sorry Jeff, don't mean to rub it in. Just had to do some Googling (ironic, I know) and figured I'd save others the time.
And what would have happened to Visix?
1) Most of the worst employees hang on for dear life to their jobs and don't dare risk losing them for any reason (asking for a raise, etc). Incompetence or sub-par job performance not withstanding.
2) Occasionally employees get a fire lit under them by a spouse, mid-life crisis, etc and attempt to obtain a raise. Doing so communicates that the employee wants to stay at the company, and that they can be low-balled.
3) The best employees have mobility in the job space and can get better offers. This is why quitting is the only reliable way to get a raise (counter-offer). The employee has clearly shown market value above their current position, and the psychological effect of social proof kicks in.
There are of course exceptions, but even a moderate amount of time in a large company shows this to be generally true. Managers are incentivized to keep personnel costs down, and only give in if their hand is forced. It's just human nature at work.
I wouldn't ask for a raise for the simple reason that I'm totally satisfied with my number. So I'm just trying to figure out which of the following is true: I am overpaid, I am stupid for being content and happy, or people just tend to be greedy.
I feel much the same way. The bills are paid, there's some money going into savings, there's time to spend with the family, and I'm doing work that's fun.
OK, I'll ride that for a while. Could I make more? Maybe. Probably. Do I need to? Nope. Sometimes going with the flow is worth it for the amount of stress it saves you (and your family). As long as you are not stagnating and feeling unfulfilled and poorly compensated, I see nothing wrong with leaving well enough alone until one of those criteria changes or a great opportunity happens along.
If it ain't broke....
In 10 years of midwest experience, $80k is probably a bit on the low side for systems-level work. Just a few years ago I would see DreamWeaver jockeys pick up full time for ~$50k/year. One hire did NOT know the difference between HTML and an HTTP server, someone else called me into a training session she was hosting and asked why her form wouldn't work. She had set the form's action param to email:
<form action="mailto:example@domain.com">
On the high-side, I've seen C/C++ contractors charge $100-$250/hour, depending wildly on the individual consultants.
So I don't think you're crazy for being happy. And great working conditions can have an often immeasurable impact on life. Happiness, is, after all, the end game - and a guaranteed $80k/year might be worth more than an unknown $120k/year for some people.
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I'm satisfied with my social life, but I still enjoy meeting new people.
I'm satisfied with my life, but still enjoy new experiences.
Myself, I'm not so sure, and I really do love working from home, so I'm plodding along as is. A little ominous though to read this right after I insisted on a salary review and got one...
Ironically, I only realized the way things worked at my last job. I wanted to get paid more, but didn't really know how. Then a few companies contacted me out of the blue; I interviewed at each and was offered a job at each. They all involved moving, which I didn't really want to do, but I kept that to myself. I then asked my current employer to match the highest offer, which they agreed to do. Then I showed them the offer letter, and they didn't believe that my other offers were so high, and tried to negotiate me back down to my current salary. I put in my two weeks noticed and my managers looked extremely surprised. Apparently nobody had ever actually followed through on their threat to quit; everyone had used "I have another offer" as a way to get an easy raise (but never as much as the mythical offer).
Anyway, my current employer is More Enlightened and I don't think I will have to play this game for a long time. Which is nice, because you never actually win...
Could you explain what you mean by this?
Posts by former or non-employees, so, perhaps biased.
Honestly, nobody's ever offered me more money than Google, so I have no reason to complain.
Many managers no more want to have negotiations about pay and advancement, than many employees do - there are two sides to the coin, many employees prefer the excitement of an affair with another company than trying to work out the existing relationship. The new company expresses their love; the old ignores the employee.
In other words, the situation described is frequently a failure of communication between supervisors and managers and their employees.
Then they refused to give me good raises the next 2 years. My skills were increasing faster than ever, and I was the only guy who knew the entire system inside and out. Everyone in the company came to me when there was a problem because I knew how it all fit together. (I did not hoard this knowledge... Others were disinterested in having it, or didn't stay long enough to matter. I was unable to pass it on, and documented as much as I could at all times.)
So at 5 years, at my review, I asked for a raise. The answer was that if I "really cared" I should go talk to my boss's boss. ... Seriously? After some arguing, my boss eventually told me that they would be looking to correct everyone's salaries within a year.
Faced with the knowledge that they intended to knowingly screw me for a year, and then possibly continue afterwards, I started replying to the job offers that had been coming in. I had previously been ignoring them.
Right away, I found a company that looked good, and signed on. For a 40% pay hike. I had known I was underpaid, but didn't realize it was that much.
6 months later, the pay raises came in at the old job. A friend who was making what I made (!) got a 20% increase. He managed to find get a job offer at the same rate I was now making, and took it back to them. They refused to match it.
And in case that wasn't insult enough, they put out a job ad for 7 new people at the rate I was now making. The rate my friend tried to get them to pay. Their existing, experienced, efficient works were worth less to them than random people off the street.
I told my new boss about all this and he gave the same advice that a lot of people here gave: Do not accept a counter offer. IF the company gives one, they intend to replace you soon with someone who won't hold them hostage. Because that's how they see it. You are demanding that they pay you more, or you'll quit and leave them short of staff until they can find a replacement. They can't take the chance that you'll do it a second time, so you're out of there as soon as they can make it happen.
And he's right. I'd do the same thing in his position. All he needs to do to avoid that problem is to pay me properly, and that's happening. It's so simple.
-If you ask for a raise without an offer in hand, you have a weak bargaining position
-If you ask for a raise with an offer in hand, you are “holding them hostage”
What is an employee to do then? Simply expect fair raises to come periodically, initiated by the employer, and quit if they don't?
If they're underperforming and not living up to what you want from them, fire them and find someone else who will.
I don't understand why employees are expected to just act helpless and be held hostage because someone gave them a job. If you're good in your field (especially in an area like tech), you should have no trouble finding other jobs at your fair market value and keeping your employer honest.
If I need something I don't go on my knees with my hand out. I understand that in the current economy, the balance of power has shifted towards employers, but it's times like these that the above attitude can make all the difference (for the better).
I also take every job I do very seriously and never abuse the responsibility I'm given. People appreciate those who can get the job done, a lot of which I can attribute to my success. If you do have a cocky attitude, it helps to be able to back it up ;).
Don't be paranoid. Don't get into this thing that you're "putting it to the man." Yes, some bosses suck, and some are cheap. Most are just trying to do their job, and most would rather keep you around than lose you.
I disagree that you've got a 'week bargaining position', though. If they're underpaying you and you ask for a raise, they can stiff you on the raise and hope you don't quit... Or they can give you the raise.
If they don't give you the raise, they know that you know you're being underpaid. At that point, you're virtually guaranteed to start looking at other jobs. You'd be a fool not to at least look.
So even if they're greedy bastards, a little common sense will show them that they need to take care of the problem properly.
Sadly, not all of them have that sense.
But most who quit and get a different job don't ask for a raise. They've already been told flat-out that they aren't getting one, and asking would be silly at that point. That's the position I was in, and it was silly. It didn't do any good except to make me mad enough that I wasn't comfortable in that company any more. (It was a nice, cushy job where I chose what I worked on, so long as it was productive.) See, they had told me that they were capping all raises at 5% because of the economy. The thing is, they had previously shown me how they do better in a bad economy, because they save companies money and new customers come flocking in. I accepted that answer 1 year because the job was really comfy. The second year, I just couldn't accept it. I was too far below what I felt I was worth.
tl;dr - Yes. Quit and find another job if they won't give you the raise you deserve.
Do some companies really believe that? I can't speak for the world of employees, but if I have to put in the work of finding another job because my salary situation is stagnant, I am going to be very bitter with my current employer and require a crazy large counter offer to consider staying.
This is not true (the original post, not yours). Typically, when an employee submits their resignation letter, they are out of the company, literally or figuratively.
If an employer makes you a counter-offer, never, ever take it. First, you already have a reason that you wanted to quit. It's usually not _just_ for the money, but probably for other reasons (e.g. intellectual boredom). If you are unhappy with your job, more money will just not help. As someone wise told me once, "Money is not a motivator, but lack of money is a de-motivator."
Secondly, and more importantly, the reason the employer is making a counter-offer is not to entice you to stay, but to buy enough time to find someone else -- a loyal and qualified someone else -- to replace you. Effectively, they are making you the counter-offer so that they don't have to spend the time and money looking for someone and training them, when they can have you train them for six months (even with a slight-but-temporary increase in your salary). You will be let go as soon as the employer feels that the new employee has been trained adequately.
The moral is, once you submit the resignation letter, stick to your guns, and don't be fooled by counter-offers.
[Edit: forgot to add, another reason they prefer you to stay is so that you can finish your current project. This minimizes risks to your project, while at the same time training your replacement. The employer would only keep you until the current project is complete, and you will probably not get any new ones.]
This generally only goes for quitting though. Simply asking for more money is completely different. the article focuses on employees quitting for leverage. If you work hard day to day and plant the seed that you're unhappy with your compensation (and continue to grind) a good manager should step in and reward you or guide you toward a promotion. The benefit just takes a lot longer than the "pay up or I quit" approach.
People need to realize this. I worked for a company that did it time after time. Everybody who actually took a counter was out on the street within three months, meaning the company was able to make a much smoother transition at the cost of just a few extra months at the higher salary.
The guy who took the counter was then in a position of finding a job when he didn't have one, which is a recipe for getting lowballed by potential employers.
When they offered me a counter I was tempted to take it on the condition they give me a huge cash bonus and a twelve month contract with steep cancellation penalties. Instead I just said no. Who wants to work at a place like that?
How does one decide that an outsider is "loyal"? More often than not the company will be "poaching" the outsider from another company. Doesn't that suggest that outsider is not loyal? And why the hell any company that does not offer life employment would expect loyalty from employees?
Btw, I think I fat-fingered and downvoted you, so I'll upvote another one of your comments (sorry)
Even if the employee was unhappy enough to go looking, changing jobs often comes with high transaction costs that most people won't want to deal with without a good reason.
Also, in the tech sector and some other areas, its not uncommon to wind up with an offer when you haven't put in the work to find another job. If you are well connected in your field, you may get offers, or at least invitations to interview, without actively looking for them.
If you're that bitter then leave. More money doesn't fix a bad working situation. If you are vastly underpaid then likely the company is stingy in other places too.
I think there's an assumption that if an employee comes to you with a better offer looking for you to counter then its likely they would like to stay. If you had no desire to remain then you can just take the new job and move on.
http://bhorowitz.com/2010/08/23/how-to-minimize-politics-in-...
I enjoy Ben's blog post because talks about a more general company problem (politics), and gives guidance and process on how to avoid politics.
if you manage a junior employee and they ask you about their career development, you can say what comes naturally and generally get away with it. As we saw above, things change when you deal with highly ambitious, seasoned professionals.
I've worked with Ben and I know that if a highly-valued technical contributor turned in a resignation he would make a counter-offer to keep them.
Those which consistently threatened to quit renegotiated by throwing other employees under the bus, which led to a very tense work environment.
I wholeheartedly agree with the sentiment that retaining employees by expecting them to renogiate for themselves is wrong headed, but I'm not sure that "never make counter-offers" is a great philosophy. You paint yourself into a corner by having this doctrine which doesn't allow you to have your whole arsenal available when the moment arises in which you might want to make a counter-offer to retain an employee.
A good axiom I've always gone with is that the amount of pressure and process a given company has built into promoting secrecy about pay is inversely proportional to my desire to work for them. If you're asked by management to never discuss salary with your peers, you know they're screwing people.
Law firms have an interesting model where everyone is paid in lock-step by seniority, and in practice it works extremely well. Employees uniformly hated the moves some firms made during the recession to get rid of lock-step compensation. I think it actually boils down to a degenerate case of Fog Creek's very uniform compensation scale (there are far fewer variables for in a law firm than a programming shop).
"Understood," I replied. "And you don't have to worry: I'm just as ashamed of it as you are."
> The most devoted, upstanding employees are the least paid, and the most conniving, disinterested ones are paid the most.
disagree. the best employees are the ones are constantly being recruited, they know their value, they have the quitting credibility to leave and go get a job anywhere else if their value isn't met.
anyway, if the employee wants to stay, it shouldn't get to the point of a counter offer. they ask for the raise, they have implied quitting credibility that is obvious and doesn't need to be used as a threat, they get the raise. if you have to actually threaten to quit, somebody is doing something wrong.
> If an employee tells you they have a job offer, tell them that if they take it then you’ll wish them well, and stick to it.
clearly Mr Cohen isn't working with superstar engineers, the type that are a massive blow to the company if they leave. you do what you need to do to keep them at any cost, not whine on a blog.
I can't find where he works(wikipedia, his blog doesn't mention anything). But considering he is the inventor of BitTorrent protocol and wrote the first client, I assume he won't be working at a place where his team doesn't comprise of equally smart people.
Also, his point was your strategy shouldn't be to make counter-offers, but to optimize the salaries and workplace in a way that people don't feel they have to quit to get counter offers.
I can't figure out what you're trying to say, but if you think there are enough programmers as smart as Bram to staff an entire company, you're a fool. And if you think they all want to work for Bram, you're doubly so. Lots of them want to start their own projects, not work on somebody else's.
I am saying Bram Cohen isn't going to work at a place where grade school teachers tell him to settle down(an example picked from some other thread where someone was telling about grade school teachers managing a bunch of programmers).
He can be selective at this point in his career. He will most likely work with small teams with smart people, or big names like GOOG, AMZN et al. which are known for their superior engineering culture.
> And if you think they all want to work for Bram, you're doubly so.
You know, there are a lot of good engineers. He doesn't need all of them. Who gives a crap if all good engineers want to work for him or not, as long as he can find n good engineers who want to work with him.
PS: Take a breath. I would have done without your fool remarks.
There are not a lot of engineers as smart as Bram Cohen. I've met maybe ten in my life, and one of them is dead.
These statements appear to contradict each other...
Ultimately retention is about creating an environment that is pleasant for your employees. This means creating opportunity financially, professionally, and personally. It's hard for any employee to leave a job that appreciates them and fosters their all around growth. Money is certainly part of it but in the big picture the message is "Build a great workplace". It's a proactive approach of doing good instead of a reactive set of rules on what not to do.
I think firms need to be consistent. Either play the game all the time, or never. If you waver, you might lose someone who just thinks it's a way to get a raise.
The investment banks are the worst at this.
No. Could be they prefer to stay but have found out that their value is higher elsewhere. Nothing wrong with that. Also doesn't mean that the company is knowingly trying to save money and clearly knows the value of the employee or the position. If someone doesn't like their job and finds a job that is clearly better (maybe it's just closer to where they live with a little more money) they might not even care what the response is of the employer.
Besides, if the person didn't in some way desire to stay they wouldn't even present an offer to stay.
By the way, all this info pertains to the tech situation right now. In traditional business it's not always great to be paid the max of your value. Those are the people that are let go first when the boss has to cut costs. The people who provide the most value might very well be the ones to keep their job.
"disinterested" means impartial or unbiased.
"uninterested" means not interested.
I wasn't going to comment on this (and thereby be a grammardouche) but I've seen the word quoted/used in the comments so many times that I thought people might actually not know this!
Management, done right, requires the ability to make judgments, including character judgments. Collapsing all possible human motivations into the single dimension of fear/greed may swell the bottom line of whoever can do it the most cynically, until at some point it doesn't, because over time (if not immediately), it will produce an atmosphere that is poisonous to innovation.
It seems best for the species that wages be allocated to where they have the highest marginal impact on the final value of goods produced or services rendered. If a great employee happens to be too squeamish to ask for a raise, but he will still go on adding steady value to the widget, it strikes me as a societal waste to initiate a pay raise for him. However, there is this HUGE possibility of negative externalities from chronic under compensation (resentment of firm, shame of cowardice for not asking for more, laziness, obstinance, etc). This makes the problem of wages extremely difficult. Factor in the complexity that "market prices" based on outside offers are inflated to cover switching cost to the employee and it gets even harder to determine the RIGHT wage. Without quantifying these externalities, the best answer to what the right wage is, from the firm (and probably system) perspective, is the least amount of money you will take to perform the work. If this sounds un appealing to you as an employee, its probably good you're reading hacker news! THE PAIN of salary management comes from finding that "lowest amount" you're willing to take. Spending energy negotiating just to get to your scenario of indifference is slow torture. The winners in the whole process are probably below average people for whom salary reverts to the mean.
I left 100k USD in the midwest to become a west coast entrepreneur. In Chicago I got my salary raised three times in three years, first unsolicited for performance, second to counter a threat to leave, and third as a promotion. The threat to leave tied the promotion in dollar amount, but was highest in percntage terms at the time. The unsolicited raise for performance was so small that it set me down a destructive path of engineering larger pay raises which i thought i deserved and didn't receive.
What I Learned -Money feels VERY important when you hate your job -Big company jobs are comparitively more valuable to people with children and houses -While the employee-led raise environment is painfull to experience, it seems to produce an appropriate allocation of LABOR eventually
Hopefully one of us will someday solve the puzzle of quantifying the value of individual labor inputs to finished goods. This would have two amazing effects. 1) workers would be fairly compensated, 2) all workers would have empirical info on how to improve their value add.
It's not true that management has the goal of minimizing comp for employees. Management tries to minimize _total compensation expenses_, which includes the costs associated with replacing an employee (and those costs can equal a full YEAR of comp in most cases.) Not to mention the disruption to projects that occurs when a key team member departs.
Really smart tech companies take a step farther: if you're in good standing when you leave, they have a special process for hiring you back if you decide you want to come back later. It's smart: they expect that lots of the best employees will want to try their hand at a startup or smaller venture at some point, but they don't burn the bridge with someone they know is a good team member.
However they have to follow the other part of the advice: "Have clear and consistent salary guidelines, and regularly give raises to people who are outperforming their pay level. Don’t be a tight-fisted, short-sighted moron."
Why not turn the problem around, instead of only having your most "conniving, disinterested" employees looking for new jobs, why not encourage all your employees to have a look around. Why not even give them some work hours to "assess their own worth". Send out CV's and do phone interviews.
Then when your best employees come back with better offers you will be happy to pay them more. Even better, the guys who are not working out have somewhere better to go and everybody is happy.
Of course, it's a dangerous game and you might not be able to afford more.
.
I've never read a good plan for doing employee reviews and salary increases.
"Have clear and consistent salary guidelines, and regularly give raises to people who are outperforming their pay level."
The problem is right here, what is a pay level. Just because there is a number somewhere in a spreadsheet doesn't mean an employee will be happy with what you give.
Do I really need to say that that idea is too ridiculous to be taken seriously?
But the whole topic is a little silly too right?
A company exists to make money for its stake holders, not pay it's programmers. It's not in a companies interest to make sure each of its programmers is paid well, only to retain the talent for as long as needed. Not necessary the same thing.
Unfortunately jobs are not the stuff we often fall in love with. Those opportunities are few and far between. But I think it is a far nobler goal to try and make more places like that than to have the most competitive salary policies.
[1] http://www.ted.com/talks/daniel_kahneman_the_riddle_of_exper... (see q&a in at the end of the transcript)
I'd agree there is a the "real happiness" number, but it's different for everyone.
So, double the number to account for those factors and geographic variance of costs, and where are you? The numbers most middle class people talk about.
But... you and me know that there are no such business around. Even people like the Google founders claim that their major goal is job happiness, but they don't think twice before buying a huge yacht with their billions. In other words, they have just talk and no attitude.
Why do you think that employees should be happy with getting only a base salary, without raises?
Each case is different. It depends on the individual employee, their performance and role in the organization.
And I don't much like how you are blaming the employee for "not wanting to work for you". Of course that will be true for some people, who simply need a change for change's sake. However, do you not share some of the blame for a high quality employee seeking outside employment? What happened to that employee to want to make them work some place else?
taking another offer is a big risk. you're leaving the cozy confines of your current job, where you know everyone and all the systems you've so carefully crafted over the years. Last time, the company i left for ended up laying off 60% of dev staff (myself included) 5 months after switching. But i am still glad i did it. i learned lots in those 6 months i wouldn't have if i stayed, and interestingly enough, when my old boss found out i was laid off he generously offered my old job back.
i have a friend, that outright tells his boss that once a year he'll be interviewing just to see what the market worth for his job is. This seems insane to me, but his boss is totally fine with that. My friend has a great job with amazing perks (sales) that would be very hard to beat elsewhere. This move does let his management know that he isn't going to stick around unless his growth at current place continues.
I never entertain counter offers simply because I consider it a firm agreement with that other company that I already accepted.
The truth is that despite the fact that lots of hn (yc) type startups have employees working for enough to cover their rent or whatever, and a bit of equity that has absolutely no defined value, when the company does take off, it's only fair to ask: All right, thanks for sticking by me, now what are you guys really worth! What is this killer graphics designer worth ; what is this DBA back-end coder worth who has just scaled us from a bedroom to millions of customers ; what is this accountant worth.
If they don't have other offers, there is NO answer to that question. You can't appeal to the cost of their bedroom or car, you can't appeal to the chance to build something great, none of this is external or fair.
Fair is what the market says.
I remember somewhere years ago on Slashdot that it's impossible to be "ripped off" in a transaction, reasoning thus: "When you have a fistful of cash in one hand, and the offered good or service in front of you (forget what the example was), and you say 'ok' and get it, that's your choice, if you get what you thought you would get giving the money that was asked, you physically can't be ripped off. The money was in your hand and it was your choice".
Well, sorry slashdot poster from years ago: that's false. When you have a fistful of money and buy something, but you are radically misinformed about the market price (to your disadvantage) then you just got ripped off. If you sell your vintage gold (whatever) for a couple of bucks, being told it's just for the value in gold, but a vintage gold (whatever) is worth 100x what you just paid: then you just got ripped off.
The thing about talent like this is there is no market price because everyone is unique. The market price is whatever other offers you get.
In the vintage gold whatever example, if someone says "This only has a tiny bit of gold in it, I can give you $100 for it", but in the same town five out of the five other specialists you would sell it to if this person wasn't in front of you offer at least $3,000 - then you just got ripped off.
I'm not talking about if you were to sell it yourself (instead of to a specailists) to another buyer: maybe buyers themselves pay $8,000. I'm talking about other opportunities in the exact same circumstances and market.
The fact is, "intrinsic" arguments (like how many ounces of gold is in something), what food and rent costs, what you paid the last guy, whatever, are worthless:
the ONLY thing that establishes the market price in my market of my graphics designer is their other offers (not their own other work, which is a different market).. The ONLY thing that establishes the market price of my back-end engineer is their other offers (again, not their consulting work, which is a different market).
I want to be fair with my employees, and I want to be treated fairly. I don't want to rip anyone off, nor do I want to be ripped off.
The ONLY way to do this is to explore market prices, and the best mechanism to do this is through other offers (since no one is fungible with other people in this industry; you can't just 'look it up').
So I'm going to have to strongly disagree on all points here.
someone else in this thread said: "It's a productivity killer. If everyone knows that John is a better developer than Bill, but Bill gets paid twice as much because he understands corporate politics, then people focus on politics, feel like life is unfair, etc. The money saved by underpaying your best employees is rarely worth the inevitable productivity hit and loss of talent."
If everyone knows that Bill and John each get 10% more here than anywhere else, then I am a generous and fair employer.
If Bill and John respectively get -20% and -40% here as compared with what they would get elsewhere, then I am both non-generous and unfair. If they both get -10% as compared with anywhere else, then I am not generous, but at least fair.
And if they get +20% and +35% as compared with what they would get elsewhere, then I am generous but unfair.
Anyone making an offer for an unknown potential employee logically and necessarily discounts the offered salary by a certain amount to take account of the unknown. So the market price for a developer is lower than what that developer should be making once they are a known quantity for the most profitable position for them in the market.
And companies should give raises based on this - not on the market price, but on the known quantity, such that the only way that an offer exceeding the salary could be made is either (a) a position that creates more value (in which case the employee really should move, should money be their motivation) or (b) an irrational company.
If my company competes successfully in its niche because of the level of fit and finish, and design, should I pay Andrew/Alice proportionally more than Barbara/Bob or Carol? Now what if my company competes successfully because of the scalable infrastructure - it's really an ops company, and it's just a faster service and that's why everyone uses it. Nobody cares about design. Then suddenly does Carol deserve more money than Andrew/Alice or Barbara/Bob? Now what if it's an excruciatingly tough market where everyone is incredibly price-sensitive. But by doing market research and have our financial acts together the best out of the companies competing in our space, we grow and prosper and persevere over them?
No. This is wrong. This leads to talented designers and finance gals and guys leaving because they're not being paid what they're worth OR appreciated. It leads to the ops company saying: "You don't get what you'd make elsewhere BECAUSE you're less important". This is the WORST POSSIBLE SOLUTION.
Of course, at an executive level you can choose to hire a BETTER designer/lead designer in one type of company, a BETTER or BETTER-CONNECTED or MORE EXPERIENCED finance gal or guy in another context, or a BETTER or MORE EXPERIENCED or whatever gal or guy for ops and back-end in a third context. You pay them more because they're WORTH more.
If you really want to go above and beyond, sure, pay them MORE than they'd get elsewhere. Show appreciation by paying or rewarding above market.
But your suggestion is right in line with command Communist economies, and goes about as far. By the way I think that's great in a small 1-5 person socialist setting (as in a family for example!). It's no way to run a company though.
*I also want to add that on the small level, "to each according to need" is also valid! If only one of the three first employees has a mortgage, then they might get a bit more to start off. This doesn't scale, and I'm telling you what needs to be done when you become an actual company with sound finances and a desire to grow, acquire and retain talent that won't be bitter.
That's not what I'm suggesting at all. My argument is entirely based on orthodox Western economics and free markets; and that's the jargon I use.
What I'm talking about is the market price for labour, in an efficient market with perfect information.
The labour market is not an efficient market. In particular, there are large information problems. It's only after you've worked with someone for a while that you reduce the information gap. And then you can pay them closer to the true market price. This reduces the risk of them getting a better offer elsewhere, because offers from elsewhere underprice labour owing to the information gap; unless they could be creating more value elsewhere (and hence command a larger salary, even taking into account the information gap) - in which case, for the (theoretical) good of society at large, they should move!
(Theoretical merely because not all utility is priced.)
I'm talking about who you'll pay $35k, who you'll pay $60k, who you'll pay $30k, and who you'll pay $80k when you first get funding, and whether you will pay anyone over $100k at all.
When market price of two of your employees are each 80-95k depending on how much information a potential employer in your geographic/other market (including you) has about them, then it is the worst possible result for you to justify a salary of $40 or $35 for either on some grounds of fairness. It's also wrong to pay one $95k and one $60k also alluding to internal factors, how much information you have about them.
You don't pay someone $60k who's worth $90k if you're being fair (it's different if you just don't have the money). We're talking about a 50% difference here, not the few percentage points that come from inefficiency of information.
I think if you had any idea what the average first employees of hackernews/yc type outfits get as initial offers, you would feel quite different about where the problem lies. (just my humble opinion).
your suggestion is not about such radical differences as compared with 'true' worth, but only smaller ones.
First employees in startups are playing a different game; a combination of risk and novelty. The employees are gambling on stock options and a payout (not a particularly rational gamble, of course); but they're also working on new technology, greenfield development, in an exciting environment, often with younger people who are less, shall we say, "conservative" in their career trajectory. All of this is utility to such first employees; and it compensates for salary, depending on their utility function.
As a company ages, the profile changes. Depending on how the employees have changed along with it, they may seek a different mix.
when it comes time to pay them fairly, either after they have acquired the experience or simply you raise enough money to do so, fair becomes determined by what they get elsewhere.
To expound upon the inflation bit. Whenever you do not give an employee a raise that matches inflation, you're decreasing his salary by decreasing its buying power.
Another more practical problem with the OP's desire to abrogate responsibility for price-setting is that it is impossible to objectively gauge the value of an employee outside of the marketplace. That value is fundamentally determined by the marketplace, by who is willing to pay what for your efforts. As much as we'd like to, we cannot ignore the fact that price is determined by supply/demand even for our own work.
I believe that employees would be better served by accepting the reality of the basis of their wages rather than waiting for some sort of ill-defined "enlightened" management to give you "what you deserve".
1. How managers should behave regarding raises
2. How employees should behave regarding raises
As an employee, you want to take control over negotiating your own raises because that generally results in more money for you. In that sense, I agree with your posts.
As a manager, you want to move employees away from political behavior. Feelings of unfairness are a big demotivator, and if you wait for employees to ask for raises, then there will be very little correlation between competence and pay. Employees will find this out, and the result will be your employees focus on politics, feel like life is unfair, and in general will be less productive.
Management might have better things to do, but if this creates an atmosphere where employees feel under-appreciated, they'll leave, and this churn can really hurt the company, which makes it a huge problem for management that could have been avoided by rewarding high performing employees earlier.
But still I bristle at tacit assumption behind the OP's point that both the amount and timing of my wage increases should rest in the hand of a manager. The OP is saying that managers should be enlightened about it, and I'm saying you can't trust management to be enlightened about it and should take charge of your own compensation.