One of the reasons American management isn’t what it used to be is that most companies do not give a rat’s ass about employees. Yes, you’ll get the usual human resources blather about how “our employees are our most important asset”, but actions on this front speak vastly louder than words. In the 1970s and early 1980s, management gurus and the business press argued that one reason German and Japanese manufacturers were trouncing their American counterparts was that they had better employee relationships. But even though there is still a mini-industry dedicated to producing corporate “leaders”, US companies too often see employees as costs, and their objective is to get buy spending as little as possible on them, rather than treating them to the extent possible as allies in building a more successful, profitable venture.
An article in the “You’re the Boss,” a New York Times column, demonstrates how deeply these warped values have taken hold in American business. Now admittedly, this feature focuses on small businesses, and these enterprises are often on the knife edge of survival. At the same time, every now-big company was a small company once, and presumably a venue like the New York Times is trying to help these companies perform better and for those that have significant potential, to chart a path that increases their odds of achieving it.
So consider this discussion:
Last spring I exchanged e-mails with Amy Christensen-Waddell, president of Albion Swords, which makes reproduction swords and armor (and I thought my business was niche!). Discussing employee pay, she asked: “If your people are making a lot of money, do you find it makes them more loyal?” I didn’t give her an immediate answer, but the question has been in the back of my mind since then. Here’s my current thinking….
But what about for the rest of us, for the unglamorous companies with mundane work, for the bosses with feet of clay? We’re going to have to think of loyalty differently. We’re going to have to buy it — by which I mean providing a package of pay, benefits, and workplace atmosphere that’s good enough that our employees can’t easily find better pastures…..
Unfortunately, for many years I was paying my people more than I could afford, and more than they could find elsewhere. Making that payroll was often excruciating. My employees were very happy with their paychecks, but the high costs were bleeding the company white. I cut wages by 20 percent in 2008 and partially restored them in 2009. Through all of that, I had no defections. My conclusion: I was paying more than I needed to.
There’s got to be a sweet spot in the middle where you pay enough to prevent defections but no more. Additional wages and benefits, beyond your employee’s next best choice, are paying extra for something you have already bought.
Now on the surface, this all sounds reasonable enough: employees can’t be relied upon to be loyal, so since they are mercenaries, the boss should pay just enough to keep them from bolting, but no more. But read the language more carefully. The author sees himself as having to buy loyalty, which is barely a step removed from seeing workers as commodities.
And how we got here is conveniently omitted from this picture. Managements at companies big and small have institutionalized short job tenures. But many people, particularly those who do not see themselves as being on a career fast track, value stability and the social contact that comes from a steady job. And if you’ve ever run a small venture, or even a small department in a company, having someone quit is hugely disruptive. You have to scramble and try to get the same amount of work done with fewer hands, and you run the risk of losing customers if you miss deadlines or let your product/service quality slip. And it’s a drain on your time to find and screen potential replacements, and a new person needs to be trained. So there are real risks and costs associated with losing staff. Yes, the author advocates paying enough to avoid attrition, but his attitude is employees come, employees go, rather than employees are the guts of his enterprise.
My experience over and over again is that hiring better people pays for itself, and once you get them, it’s worth it to pay more to keep them. In some industries, the output gap between “high” and “normal” can be very wide; in software development, top programmers are estimated to be ten times more productive. If you’ve ever had the good fortune to hire a superb secretary, you’ll similarly know that supposedly low level staff can be hugely efficient and critical working oars in larger teams. And there are other ways to pay people besides hard cash, for those that are strained. One firm I know was very tolerant of staff maintaining weird hours as long as they kept in touch with the mother ship and got their work done on time; it attracted people of a Bohemian temperament who in return for an interesting combination of indulgence of their quirks but insistence of high standards on client work, got considerable bang for its limited buck.
I’d be curious to get reader input, but I have a sneaking suspicion that most companies that made the transition from startup to long lived ventures didn’t get there by setting wages as just above the level where employees would actively shop there resumes. Running a small business is hard, and cash-strapped employers often have to make difficult compromises, but I am bothered by the fact that this piece sets standards so low. An employer not have the luxury of treating his employees as well as he would like to, or as his workers might deserve, but if he fails to set this as an aspiration, it is guaranteed not to happen.
Originally published at naked capitalism and reproduced here with permission.