Salaries

Another of Ted’s LinkedIn Posts

Another good post by this guy here, I have some comments to offer, with quotes extracted I will comment on, but the gist of the post is that productivity has gone up quite a bit from the 1950s, but we’re still working minimum 40 hour weeks.

“So: what does all this mean?”

What does working the same 40 hours – and to be honest usually consistently way more – per week, and being dramatically more productive while getting roughly the same pay in real terms, mean? It means you’re getting screwed big time, because while your productive output has skyrocketed relative to the 50’s worker, your pay is roughly the same in real terms; buying power, or the standard of living you can afford.

“Why are we still so concerned with a 40-hour+ work week?”

Because it sets an arbitrary standard allowing for control over people corporations otherwise wouldn’t get, basically a holdover from the industrial revolution. Managing to performance and outputs would make more sense, but it’s way easier to make sure someone puts in their 40 hours – again, usually way more these days too – per week than it is to make sure they actually do their job well. Plus employers always think a productivity gain means more for them over a given time period. It never, or rarely occurs to them, that people have limits or that labor carries dis-utility, and as such their employees might prefer and expect a little more time for themselves as non monetary compensation, especially considering as their increase in output is almost never matched with an increase in compensation.

Basically when you look at stats and analysis like these, it paints a picture of a labor force that is increasingly robbed of the value of its output, which is usually redistributed to the famed 1%.  Of course, a decent economist will tell you a relative difference in wealth isn’t indicative of a problem in itself; why complain X has five yachts and you only have 1?  However, I think such people are too dismissive of the fact that these wealth differences matter to people.  When you see your boss pull up in a new BMW on the day of lay-offs, it makes an impression.  Plus, I feel people know inherently when they’re being screwed, or when the value they’re receiving is not necessarily in line with what they’re giving in return.

It’s my contention that via monetary, fiscal, trade, and other policies and protective legislation businesses have protected themselves from competition and produced what amounts to a permanent jobs shortage, forcing a devaluation of labor and what amounts to real wages that aren’t rising commensurate with the labor force’s increase in productivity over the years.  As labor gets more productive, it should become more valuable in real terms.  That is, nominal salaries may go up or down, but the buying power/standard of living received in return for work should have a secular trend upward along with productivity.  As that value received has, by most measures I’ve seen, stagnated or fallen, that’s a serious indication that something is massively fucked up with the system.  To the extent you can trust econometrics, George Carlin was right.  It’s called the American Dream because you have to be asleep to believe it.  In the waking world, people are working more and more for increasingly lower returns, and sacrificing their health and families and friendships on the altar of 60+ hour work weeks.

A Recruiter.com Article I Commented On

There’s an article here at Recruiter.com that I decided to comment on.  Here’s the comment:

“‘It’s weird that we haven’t built any tools for team leaders at all,’ Buckingham says. ‘We have none – not even a few good ones. We have zero.'”

Team leaders themselves are employees, and at the root of this disengagement problem is the fact that companies do not actually value their employees. That’s why they don’t have the tools they need. Companies say they value their employees, they give lip service to doing so, but this value is not reflected in their actual actions; pay offered, benefits offered, work-life balance, having skilled managers, and opportunities for development and advancement. You have to actually have all those things to get people engaged, not just mention them in a speech every now an then but never deliver. Rhetoric is not enough, we are in the information age where reality trumps Sales! oriented rhetoric of promises with no follow through, and people can increasingly see through the BS on a shorter and shorter time scale. It takes them far less time these days to realize their CEO is full of crap.

As long as companies fail to deliver on the things that will create engagement, they can measure it all they want and it won’t get better. As mentioned in the article, you can’t make a pig fatter by weighing it more often. So, the message to companies who want to increase engagement should be, pull your heads out of your posteriors and start taking actions that will increase engagement instead of endlessly fussing about it, but not doing anything about it. Most will do nothing, because increasing engagement will mean addressing and valuing employees’ concerns which may not seem immediately tied to bottom line improvements, because few if any companies tally the cost of disengagement and factor that into their financial judgements. But, it’s an easy start.

Step one, examine your salary structure and make sure people are making market wages, perhaps pay more if you think you need to compensate for things you can’t deliver, perhaps a bit less because of other perks you do offer, but there can’t be a massive disparity between your pay and the market mean, or you’re screwed.

Step two, examine your benefits and again, make sure they are on part with the market. This is an area where you can make a big dent because while time off is not very costly to offer, it makes a huge difference in people’s lives. Examine your health plans, time off plans, and work hours, and make sure they are all reasonable from an employee’s perspective. Try adhering to it yourself, and if you can’t do so without availing yourself of the perks of ‘flexibility’ offered to higher-ups, how the hell do you expect them to live on it? If people are working significantly more than 40 hours a week on a consistent basis, find out why and put a stop to it, or they will burn out and turnover, plain and simple. If your vacation plan is the standard plan of Go To Hell, Get Back To Work, revise it. Talk to a few brokers and see if you can get better health coverage if that’s a factor as well, it’s not hard.

Step three, start looking at your existing employees as resources and start considering advancement and succession planning. The institutional knowledge they have is often priceless, so capitalize on it and actually try to retain them proactively instead of waiting for their resignations and then wondering what happened. This can dramatically cut recruitment costs by shifting the need to back filling more basic positions. Always exhaust the internal pool of all possibilities before hiring outside.

These are not hard, and if done would correct most companies’ engagement problems. In many cases they’re not even costly, and yet companies still refuse to do them. That is an indicator of how much they actually care about engagement. In simpler terms, they don’t care, or it would be dealt with already.

Myths That Need to be Busted

If there were two myths in hiring I’d say absolutely need to be busted, I’d say it’s these two:

1) Employees are a Cost.  This is utter bullshit.  In any exchange, it happens because of a reverse valuation; which means each person wants what the other has more than what they’re giving them in exchange for it.  If you value two things equally, there’s no need to exchange because it doesn’t matter.  In the context of employment, the employee wants the salary more than the time spent on the job, and the employer wants the work product more than the salary paid for it.  As such, employees are an addition to a company’s revenue stream.  When any individual trades something they have for something they want more than that thing, they have made a return, or a profit.  Same goes for employers.  So companies need to stop acting as if employees are a cost and see them for what they are: additions to their revenue stream.  They need to start realizing vacancies have a cost, both in lost revenue from that position, but also lost revenue for everyone who has to pick up the slack and so potentially not performing their primary duties to the best of their ability.  Over staffing is certainly possible, but as long as employees are seen as a cost, all companies are always over staffed, because at least on an accounting level, they would be better off without everyone.  Of course, if that happened then the company is gone too.

Newsflash for employers: you’re not doing anyone a favor by employing them.  It’s a mutual exchange that benefits both parties.  Pull your heads out of your asses and start treating your employees as what they are: revenue generators.

2) There’s a labor shortage.  Pure bullshit.  There’s a documented labor surplus, and I and other recruiters have routinely seen multiple instances of tens, hundreds, and sometimes even thousands of applicants for an open position where the hiring manager claims none are qualified.  It’s not the candidates, it’s not a labor shortage, it’s not the recruiters.  The problem is no accountability for hiring with the managers.  There’s plenty of qualified people out there, your hiring managers are not accountable, nor do you have an honest, realistic assessment of what you offer as an employer.  Every employer thinks they deserve the Fabulous 5%, the top performers in any industry.  Horseshit.  You’re an average company with average salaries and average managers, you’re going to get average people.  Fucking deal with it.  You’re not Google, you have no benefits, you offer mediocre to no time off, who the fuck do you think is going to want to work for you?  You had better do an honest assessment of where you stand.  Think of yourself as a manufacturer of employment opportunities.  And then realize that, if it were any other product, that if your market strategy was to bitch and moan about how inept your customers were for not being willing to buy your clearly superior product for the ridiculously high price you charge, you’d be out of business in a heart beat.  In this case the high price you’re charging is the ridiculous discount to the mean salary offered in the area that you expect people to take for the ‘privilege’ of working at your company.

It’s time for employers to pull their heads out of their asses and start taking ownership of the hiring process.  If employment at your company isn’t attractive that’s your fault, and you need to correct it.  Control bad managers, up your salaries to something more reasonable, and start holding people accountable for getting positions filled.  And for those places with screaming, abusive owners, have the balls to be the one who explains to them how pathetic that behavior is and how horrible it is for their own business.

And if you aren’t willing to do those things, then don’t blame everyone else for your problems.  You aren’t serving your customers right, and that’s your fault, not theirs.

Opportunity!

This is advice for candidates.  Recruiters are always trying to sell you on a great Opportunity!  Yeah, the pay is maybe better than what you’ve got now, usually not.  The benefits are about the same, or worse.  The commute is about the same, or worse, maybe a little better.  Work-life balance is something most companies never heard of, so it’ll be the same.  But it’s such a great Opportunity!  So, you gotta take it, right?

Wrong.

Now, you may or may not take any particular job, that’s up to you to judge.  However, when making that judgement, know that Opportunity! is what a recruiter sells when there’s nothing else to sell.  It’s kind of like when those credit card protection hucksters sell you Peace of Mind.  Peace of Mind is an intangible load of BS, what it means is they’re selling you something you’re probably never going to need.  Incidentally, the only reason they sell those credit card protection programs is because the fee usually works out to the equivalent of adding 10 points on your interest.  The ‘protection’ they offer is usually something you already get via some law or regulation, of in the contract you already signed.

When a recruiter tries to sell you on the Opportunity! of a job, ask questions.  One, ask why it’s such a great opportunity.  If all you get is some happy horseshit about it being a great company, etc., then they’re full of shit.  If they get more specific and talk about the company’s technology, market position, tenure of existing employees, advancement, then that’s worth considering.  But keep in mind, most of that is bullshit too.  Two, ask yourself if, even if the recruiter is telling the truth, is that the opportunity you want and need?

You need to judge where you’re at in your career, and what the Opportunity! is worth, assuming it’s real.  Recruiters, bless their hearts, will call 55 year old electrical engineers and try and sell them the Opportunity! for advancement in their career.  A 55 year old engineer likely doesn’t have much career left, nor is s/he usually looking for one.  A 55 year old engineer has already had their Opportunity! and proven themselves, and now just deserves to get paid what they’re worth off the bat.  Which feeds into the last point…

Opportunity! is usually just an excuse to pay you less.  It’s another way of saying, “Yeah, technically the mean salary for position X in area Y is 75K per year and we’re only offering 50K, but the Opportunity! is tremendous, so please take the job at a discount!”

Remember, the average company is average.  They have average salaries, average management, average jobs, average commutes, average benefits, and average opportunity.  If the salary and all else is below average, usually the Opportunity! is too.  Recruiters want you to think you’re one job move away from the Opportunity! to become the next Steve Jobs or Bill Gates.  You’re not.  The chances of you becoming that filthy rich are less than winning the lottery.  However, if you work your ass off and never see your family and give yourself an early heart attack, you may have the opportunity to get into a slightly higher pay bracket.  Assuming it all doesn’t disappear into taxes, what reality boils down to is if you truly work your ass off you’ll be able to afford an Acura as opposed to a Honda.  You will have a two and one half bath house instead of a one and one half.  And, the chances of even that happening are still pretty much lottery levels.

So, instead of using the Dollar and a Dream approach to career planning, my advice as a recruiter is to always demand to paid what you’re worth now.  Don’t settle for the Opportunity! to get what you’re worth now in five to ten years if you work your ass off and if your boss decides to acknowledge it.

Fuck Opportunity!, get paid what you’re worth now.

Recruiting Revolution?

Nice essay here, but is there any evidence that, “[t]he recruitment industry has gotten lazy and a revolution is upon us?” Revolution usually means a shake up of some sorts – advancement, new technology or processes, etc., – whereas here, revolution seems to mean acting like we’re still in the seventies. There are a couple problems with that, I see.

‘Lazy’ recruiting is effective as far as many corporations are concerned. If you took two batches of resumes, one into which you poured your heart and soul, and the other which you sourced real quick with minimal work via a mass email campaign, they’re likely to get the same consideration from the client, or the hiring manager for those already on the corporate side. Put another way, the ability to jump on the phones and cold call is not the rate-limiting step in the recruiting process.

I don’t know of anyone who removed their resume from a database because they were worried about being seen as “active.” In fact, few outside the recruiting industry even know what the jargon of “active” and “passive” means. Resume databases lost their effectiveness because they lost their newness, the initial crowds of people who went there because they were active are now passive, but still in the database. The postings which were once new are now ubiquitous, and buried among thousands of others that look much the same.

There has been no revolution in recruiting, all I see is more of the same. Job boards are just hopped up versions of the white pages and corporate directories. LinkedIn is more of the same. Social media outlets are a slightly different version of the same thing. These are all just means of contacting people, and many of these people won’t pick up the phone when called, so these means of finding and contacting people compliment cold calling, they don’t replace it. If communication is key, then one form of communication doesn’t trump all others. The one that’s the most effective for a given situation is what should be used. Calling ten people from warm leads gotten via an email campaign and then cold calling some of the desirable candidates I wanted but who didn’t respond is way more effective than cold calling 70+ people a day from scratch, in my experience.

Here’s what a genuine revolution in recruiting would be: Honesty with candidates and clients.

To start, explain to everyone that salary matters and it can’t be ignored. This is not a statement on low salaries, but one about the inherent taboo in even discussing the topic. I can’t count the amount of times people have nearly had heart attacks when I’ve discussed salary ranges openly and honestly with candidates and clients at the start, or near to it, of a conversation. “Why would you do that?!” I recall one person asking me. Apparently you’re supposed to speak to people for an hour and get their life story, and then find out they’re making 10-20K more than your client is willing to pay. Also, you’re apparently also supposed to take any job at any price and not even mention to your client that since they’re targetting a salary that’s 30%+ below market rate, it might take a while and/or they might need to sacrifice quality. When this BS ends and both candidates and companies honestly face their own worth on the market, that will be a revolution in recruiting.

Further, being able to have a greater effect on, and potentially fix dysfunctional hiring processes would be revolutionary. Having had to do this myself for two companies now, I know how difficult it is, and being back on the agency side I’ve felt the effects of ones I couldn’t change. As long as the majority of hiring processes are dysfunctional, that will be the rate limiting step in recruiting. An unwillingness to get on the phone is not necessarily the problem with recruiters today. I’ve seen the best firms put the best candidates into the meat grinder of a dysfunctional hiring process, and that is the rate limiting factor in recruiting.

The real revolution in recruiting will be taking as much of the ‘art’ – BS in other words – out of the process as possible by outlining standards and best practices for hiring that are based on evidence, and not merely plausible sounding rhetoric or the pontifications of people like Steve Jobs, and then having honest conversations with those who come up short, both companies whose processes are deficient and candidates who think they should be hired with no vetting whatsoever.

One of the first moves toward that end of evidence based hiring is for someone to actually present evidence that so called ‘passive’ candidates are better. Evidence would be direct evidence of better performance and longer tenure than so called ‘active’ candidates. Unless that’s presented then it’s a marketing distinction for targeting different audiences, not one that’s linked to actual candidate quality or subsequent performance.

A further revolutionary step would be stop looking at Employers of Choice uncritically, assuming all their methods should or even could be adopted by companies without the brand pull they have. Most companies operate with far less brand recognition and far tighter budgets and human resources. Truly revolutionary methods will work to improve hiring regardless of the company that uses them.

I’ve used the term rate limiting in this post a couple of times. In chemistry and biology a rate limiting step is basically the slowest step in a process that determines the speed of the rest of the process. If you’re talking mechanical systems, you could say be dealing with a pump that pushes 10 gallons of water per minute. If you want more per minute then it won’t matter how much water you add to reservoir, it will still only pump 10 gallons a minute to the destination. The pump is what needs to be changed. In recruiting the rate limiting step in most companies is the hiring process. And we as recruiters are constantly trying to put more water (candidates) in the client’s reservoir in the hope that more will end up hired, but it doesn’t work that way. The pump is too slow, and in many cases is broken. What’s more, a good number of companies engage in such poor hiring and management practices that they actively work against their own ability to hire quality people by destroying their reputation as employers.

To finish, we also live in a highly managed market, and it’s mostly special interests, those with money and thus political pull, who manage this market. Companies, from small to large, all have more pull politically at the local, state, and federal levels, than individual workers. That’s why politicians never raise the minimum wage until the currency has devalued to such a point that raising it is essentially a meaningless act. That’s why industries often write the legislation that gets passed. And, whether actively or simply as a byproduct of pursuing their own interests in the political process, businesses have essentially managed the labor market into a permanent surplus of labor. And as long as there is this perceived plenty of labor, and businesses think there’s always someone new ready to replace anyone they don’t like, they won’t put any serious resources into getting good people or keeping the ones they already have. They will continue to run people ragged and then replace them when they burn out. They will continue to demand loyalty from their workers while they show none. They will cut labor in seconds if the bottom line dictates it, but if an employee makes the same decision based on a better offer they are black listed.

This imbalance of power in the employer-employee relationship dictates the quality of the process in the end. This imbalance is the result of economic reality, because employees are disposable and easily replaced in many cases – but also critically the result of social mores. The ‘entrepreneur’ is deified even though no such thing exists, while the laborer is considered a loser of sorts. The entrepreneurial function is an economic concept that just differentiates the profit of risk taking from the capital return of funding a production process, minus the uncertainty and risk, for pedagogical purposes. In reality all people serve all economic functions to varying extents. Those who tend more toward the entrepreneurial function take on more risk, but they are also usually a mix of private entrepreneur, one who makes money by taking risks and satisfying customers, and political entrepreneur, which is one who makes money by using the government to turn the arm of his potential customers by limiting competition. There is no pure, Ayn Randian ‘producer’ or ‘entrepreneur’ in reality. But, thanks to rhetoric from both the right and left wing, and well meaning but somewhat theoretical economists of various stripes, we are taught to deify the entrepreneur a no one else. The owner/CEO of a business and his cohorts get a pass on poor, immoral, and unethical behavior, while everyone else gets held to a higher standard.

Once that stops, maybe then a revolution is recruiting is possible. Until then, it isn’t, because the peasants have no power.

Principles of Hiring Good Employees – Salaries

Employees are not a cost, they are an addition to your revenue stream. You hire people to do something productive that you need. You pay them because what they produce is more valuable to you than the salary you give them. Therefore, they add to the value of your company.

The work product that a person produces should have a value to you, that is what the person should be paid for producing it for you. Attempts to bargain down the price based on past salary or other factors will only lead to turnover in the future. If a person’s work product is worth X dollars, you should pay them X dollars regardless of previous salaries above or below X. If they are earning significantly more than X, you are putting them in a situation in which their full capabilities will not be employed, they will likely leave sooner for an opportunity which allows them a higher salary and full use of their capabilities. If their previous salary is below X, they were likely undervalued and under utilized in their previous position, and if you bring them on at the same rate or with only a small raise, they will be likely to leave for a position paying closer to X once they realize their full value on the market. You are not the only employer looking for such product, other employers will bid up the price of labor to market levels. If you perpetually try to pay below market levels, you will have perpetual turnover issues, you will have trouble retaining the people you deem to be good hires, and you will have sub standard employees. Pay your employees what they are worth, treat them well, and you will retain them.

People who say salary is not a motivator, or even that it doesn’t matter, are flat out idiots, and often consultants who essentially get paid to tell corporate executives what they want to hear as opposed to the truth. No other form of compensation matters anywhere near as much, because no other form of compensation can be used to pay bills. If someone told you you can buy a Bentley for any price because there were all kinds of other reasons why you should own one, and all these other forms of payment the dealer would accept, you’d be an idiot to believe them. If you then went from dealership to dealership listing all these reasons why you should own a Continental GT, but only offering the price of a Honda Accord, you’d be laughed out of the dealership, and rightly so.

There is no magical reason your purchase of labor will or should be different. Keep that in mind the next time you low-ball a candidate on the offer.

The Salary Barrier

The salary question is the first one I’d like to address here, or more specifically I want to address The Salary Barrier.  The Salary Barrier is that point in a conversation where you have ascertained that the person in question understands and accepts the concept of prices and pricing, but still can’t see how that applies to labor, or salaries.  We’re going to have to start with some basics on this one.

Prices.  Everything that is scarce and valued has a price.  Prices are developed on markets, they are bid up and down based on supply and demand conditions, all based on the subjective perceptions of the people doing the bidding.  I prefer the most and least competent buyers and sellers model, but I forget who first proposed it.  However, it’s enough to know it’s a process of discovery that occurs continuously.

Now, if you were to run into a Rolls Royce dealership and demand a Grey Ghost, but only offer the price of a Honda Accord, almost everyone understands you will be asked to leave, or laughed out of the place.  This concept, using various goods and services, is understood by most every human being on the Earth.  Except with regard to wages.

What’s more, HR and recruiting professionals, at least some of them, seem to make a living not doing much HR or recruiting, but writing about those things.  They tend to hive off into high minded theoretical horseshit.  One such avenue their thoughts travel is the role of compensation in motivating people.  They will often talk about allowing employees to be creative, to stimulate them, to do any number of things.  Other than pay them.

Now, CEOs and business owners read these articles, and you must understand, most of them are incompetent.  Most companies in the US are small to medium sized businesses.  They are run by amateurs who were in the right place at the right time, with the right service or product.  they are not necessarily run by people who have a clue how to manage a business, much less other people.  So, they read these articles and always come away with the idea that you offer alternative forms of compensation in lieu of actual salary, not in addition to salary.

No, it’s also important to remember that salaries fall on a normal distribution like anything else.  There’s a mean, a median, and a mode.  These are instructive as to what the going rate for a given type of labor would be, and these numbers are easily accessible these days at websites like salary.com.  This means both employers and potential employees know what they should be getting in a general sense.

Now, the kicker is that in recruiting, whether you’re corporate or agency, you’re still likely inundated with requests to fill positions at salaries that are 30-50% below where the market says they should be.  Here’s why…

No one thinks to check first.  Or, very few people do.  It’s really that simple.

So, we have a perfect storm of recruiting and HR professionals basically earning money by telling CEOs and business owners that they don’t actually have to pay their employees.  You get incompetent managers and HR departments that decide on budgets before looking at actual job requirements.  And you have agencies working mostly on spec who take the orders, with no DSLA in place and so no consequences for the originating company beyond the cost of their vacancy, and those agencies will sit on the order and work it and eventually what happens is the job doesn’t get filled, they get really lucky and find someone who is undervalued and willing to take the position at the salary proposed, or, and this is the least likely, the company caves in and pays market rate for what they actually need.

Here’s the reality…

You get what you pay for in the labor market as in every other market.  Labor has a price, you either pay it or put up with a more junior person who you can afford.

If you want to fill a position, you will figure out what the job description is and then look up the salary ranges for that type of role in your area, and aim there.  If you’re below the mean salary you will have problems filling the position.  If you’re significantly below the mean salary, you will not fill the position.  If you have alternative forms of compensation you can offer, these need to be offered to your high performers as a means of retaining them.  You can not make up for any significant shortfall in salary with other benefits except in rare instances where what you’re offering is exactly what the employee wants.

It is way past the time HR and recruiting professionals pulled their thumbs out of their asses and told companies they have to pay their employees and pay a market wage.  If they are not willing to do that, you can still find them people, however they will be more junior than where they were aiming, or of lower quality, like lacking leadership potential, etc.  You can’t simply “get people” at any price for any job.  Recruiters and HR professionals need to set better expectations and push back more on these companies run by idiots who think they can go to an electrical engineer who would be earning 90K at any random company in area and offer that person 50K and that they’ll jump at the offer for some reason.

To all business owners: you are not the only game in town.  There are other companies out there, and they’re offering jobs pretty much like the ones you offer, with pretty much the same benefits and working conditions, etc.  You need to look at your company in a totally honest fashion with no marketing or PR bullshit in the way and find out why someone would want to work there.  If you can’t answer that, or if there really is no reason, you need to look at your compensation rates because that will become the only way to differentiate your company from the competition.

And to finish up, you need to stop listening to morons who try and tell you salary is not a motivator for people.  It is the primary motivator.  People need food, shelter, and clothing.  They do not get that by having more creativity at work, or working for a company with a prestigious name.  Try and pay your rent or mortgage with either of those things, it won’t work.  You first need to compensate your employees fairly for what they are doing for you, and then target the ones you want to retain and hit them with non monetary compensation to try and keep them around longer.  Money is without fail the first question candidates ask about in any inquiry about a position.  People need to stop tip toeing around this issue and address up front and in the open: pay matters.  Deal with it and pay your employees with money, not freedom or opportunity or any other non monetary piece of bullshit.