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Friday, April 1, 2011

Beyond the Numbers: How Important is Salary?

From the desk of the Chairman:

“If you pay in peanuts, you get monkeys.” Anonymous

In a high performing culture, which comes first – money or performance?

Doling out a salary of peanuts to your employees may very well turn them into monkeys.  At the same time, you don’t want to overpay them either. Before you get caught up in a chicken-egg paradox, you must realize that money alone will not increase employees’ value proposition to the company.

After speaking with many retired CEOs, they have all commented that it is people who take care of the company and its clients, not processes, money, metrics, and benchmarks. If you value the people, they will take care of processes and money.

Too often, executives overlook three main areas of focus that affect employee and company performance:
  1. Building your global competitive edge through the right employees
  2. The importance of an empowering vision – leadership’s role 
  3. Making sure your employees maintain a strong value proposition for the company and clients into the future

Clearly, if you want to have an edge in this global economy, you need to pay a competitive salary. However, you also must make sure you are paying it to the right people. For example, in 2007, the Bank of China took extreme measures to make sure its employees were competitive with the rest of the world. The bank made every single employee apply for their jobs as if they were applying for the first time.

I’m not advocating this practice, but the message was clear: you are competing against anyone who wants your job. Your job is no longer guaranteed and if you’re not the best person for the job, you will lose it. Everyone at the company should be focused on the importance of their position to the company.

Additionally, it is important to consider that even a company with a competitive global salary can run out of steam without a vision to inspire employees. For example, I have seen the CEO who pays employees higher than normal salaries. His vision was based solely on creating more money. That philosophy did not excite employees, and that CEO did not have an environment where people were rewarded for learning and being stretched and challenged. They just did more and more work. Even though the CEO of that business felt he was overpaying his people, his feeling was he had monkeys.

On the other hand, there are countries that do not have the luxury of high salaries and bonuses.  In some instances, money serves little or no purpose in the workforce. For example, while living in the jungles of Belize and rural villages of Costa Rica, I learned leadership strategies that empowered people to perform their best without exchanging currency. The leaders of these villages held a vision of collaboration and mutual benefit, except they did not own it for themselves. They shared those ideals with the community so that every worker, myself included, worked hard because they wanted to see the group or organization succeed.

Despite the need for capital, when people are empowered by the ideals of a village or company, they take pride in what they are accomplishing. When they are in an environment that embraces change, encourages high performance and rewards it, people deliver beyond expectations. We see this in sporting teams that have the highest paid athletes, yet they never make it to the playoffs.    

An ideal business model would feature employees who are too valuable to be let go. So how do you ensure employees have greater value as they progress in their tenure? It is partly the result of getting the right people on the bus as Jim Collins states in Good to Great. The other is making sure the job the person is doing creates value. As Richard Goeglein, Chairman of Pinnacle Entertainment explains, “It’s an insult to an employee to be in a job that does not provide value to the organization or its customers.”

Certain jobs lose value over time. Like a business, employees must remain relevant in a world of constant change. Therefore, employers and employees have a shared responsibility of increasing employee value. To keep a corporation on the tip of its feet, employees need to constantly develop new skills and competencies. To maintain a dynamic company, employees must be able to evolve. At the same time, the company also has a fiduciary responsibility to see that their employees are growing more effectively.

Ultimately, employees with skills and competencies that become obsolete will end up being paid peanuts and companies that don’t develop their employees will be left with monkeys. 

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