Salaries

The! War! For! Talent!

Lately I’ve been seeing a lot of posts prognosticating that 2015 is going to be The Year where everything turns around. Employees are in the driver’s seat! Salaries are going up! The economy is in real recovery!

All from the same troop of jackasses who thought real estate prices could never go down, and that pre crash we were in a post scarcity world where wealth would just pile up endlessly for everyone.  Well, I say horse shit.

One, prediction can only be made in broad, qualitative terms.  Quantitative predictions are almost always wrong.  Two, trends are great, until they reverse, and then they’re not trends anymore.  So, here’s my prognostication:

There may be a slight uptick in salaries in 2015.  The Fed against all probability has managed to reflate a bit of a bubble, so people might feel richer for it, at least for a while.  However,  some policies and realities continue regardless of the optimism of a few.  For one, monetary policy here and in almost every other country has gone full retard, and the underlying misallocations of capital thanks to near zero, and in reality negative interest loans when you account for devaluation, will eventually have to be exposed and corrected.  What that means is the crash of 2008 was chump change compared to what’s coming.

The end of the petro dollar seems inevitable, and without that the US loses some clout in the world.  China and Russia will get friendlier, and India will go along with them.  And specifically to China, my guess is that’s where the black swan event will occur that will bring on the next depression.  You’ve got them being the latest blip on the skyscraper index, and they are literally building entire cities for no one in that country.  If ever there was a real Austrian Economics style bubble economy happening, it’s in China, and when that one pops it’s going to take a big chunk of the world with it.

And, to top all that off, monetary and trade policy remains moronic in the US, regulations are piling up, and income inequality is being exacerbated to an extreme, with the levels of expatriation of the rich going through the roof.

In the US we are seeing a blip upwards on what is otherwise a very long path downward, and it won’t be long before capital starts flowing out of the US en masse.  I’m with Peter Schiff, eventually this will resolve itself into a currency crisis, and I’m pretty sure most currency crisis lead to military crisis.

So, overall, my guess is it’s not too much longer before World War III gets going in earnest.

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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.