Does it ever make sense to pay people way above market in salary or benefits? A few high profile technology employers are going to find out.
The wage market is a very smart organism, establishing a floor for what it takes to get and keep a qualified person in a role. Another market, the one for goods and services, tells an employer how much it can pay above market wages and still make a profit.
Why would an employer voluntarily pay more than they “have to”? The idea is if they pay a higher than market based wage, or provide unlimited vacation and maternity leave, employees will work harder and produce more.
Something else is going on here as well. The demand for extreme talent in some of the most competitive technology sectors is creating a new wage market with a different floor. These companies are not ignoring the market, they are finding new ways to stay ahead of their market’s unique requirements.
When you deconstruct media headlines such as “Netflix Provides Unlimited Paid Vacation,” you can see market forces at work. A Netflix executive recently said the company does not really have unlimited paid vacation, it simply decided to stop tracking paid days off and to trust people to get their work done. Combined with a very serious process for attracting the best and quickly departing under-performers, Netflix has the ultimate accountability culture wrapped in flexible time off.
This is very different from “unlimited paid vacation.” As sure as turkey at Thanksgiving, the employee who decides to phone it in for an extended period without producing excellent work will be looking for a more tolerant employer. Lots of flexibility with just as much responsibility, yes; unlimited vacation, no.
Even high pay and unlimited paid time off cannot make up for lack of the basics. What kind of manager do I have? Is there a good plan for business success? Do people here use respect and teamwork? Netflix has a relatively low score on glassdoor.com for the “recommend to a friend” question despite headline-grabbing benefits.
High profit margins
Gravity Payments of Seattle took an even bigger step by raising its minimum entry level pay to $70,000. Gravity’s CEO seems to have a social purpose rather than a market-based talent attraction strategy. His co-owner and some employees have reacted badly to the announcement for internal equity and economic reality reasons.
Above-market pay is not new. Our annual N.C. Wage and Salary survey often shows tremendous range within roles from lowest to highest pay. It tends to happen where industry profit margin, variability in role demands or individual longevity drive up the price. Other jobs operate in narrow pay ranges due to their known contribution and ample supply.
The very best people will always be attracted to the highest pay, especially if the workplace is well managed and led. Employers with high profit margins will always have options others do not. Expecting market-busting pay and benefits to generate a high profit margin is unrealistic.
Bruce Clarke, J.D., is CEO of CAI, helping more than 1,000 North Carolina employers maximize employee engagement and minimize employer liability. For more information, visit www.capital.org.