I believe that he's saying you shouldn't pay people well enough that they'll stay even if they really dislike the work. Instead, find someone who's excited about the work,and then find out how much they want.
There's a lot I don't know about business, but here's an idea I haven't heard of: pay people very little, but with immediate raises. I think the common wisdom is to avoid raises until you have revenue, but if you're going to spend, say, 60K/yr on someone and have funding for one year, you could structure the 60K in such a way as to provide 5 or 10 percent increases in paycheck for the entire year. Since people are happier about getting a raise than having any given amount, this might maximize payroll satisfaction.
You'd have to start them off at a pretty low salary though (like 30k if my back of the envelope math-fu is good today). Would you take a job at a lower pay rate if they claimed to offer weekly raises? Seems like this would really shift too much power to your employer.
What happens in year 2 on the job where its no longer possible to keep raising the pay on a regular basis?
I don't think the idea is to promise the pay raises. Where would the production-incentive be, if the employees thought they had earned the pay-raises up front?
Actually, my idea was to promise the pay increases. This assumes that knowing you're going to get them won't affect the joy of getting them very much. But that could be wrong.
Also, the idea is not to prompt working harder because people actually think they're getting raises, but to make people you've already hired happier, on the assumption that happier people produce more/better.
Actually, my idea was to promise the pay increases.
OK. I stand corrected.
What do you do if, halfway through the year, the corporate board tells you to cut spending? Do you keep your promise to the employees, and risk offending the board? I've had similar continuous-pay-increase ideas, myself, but I'm not sure about promising them up front.
I like the idea of paying partly in equity, by the way. That way the employees are actually part of the company (co-owners), and they can genuinely feel they are building something that is theirs. Maybe the equity payments could be increased over time.
"What do you do if, halfway through the year, the corporate board tells you to cut spending?"
Whatever you would otherwise have done. If you have to lay people off, you lay people off. Since the yearly pay is known in advance, the only odd bit is the schedule of payments... if you have to lay someone off, you've actually spent less than you would have if all their paychecks are the same. But the details of all this aren't really the point -- I'm sure they could be worked out, if someone wanted to try it. I may if I hire employees at some point.
Paying partly in equity seems nice, but it seems even less sustainable than distributing an employee's paycheck unevenly.
Paying partly in equity seems nice, but it seems even less sustainable
In a company that were not growing, it would indeed be unsustainable to pay in equity (unless the value fo the equity were continuously shrinking. But why would a startup company not be growing (valuation rising)? Unless it is a failure, isn't it normally growing?
I think he's saying that a cushy job can lead to a mediocre career. Once you get used to high pay, perks, and having it easy, it gets extremely hard to leave for a risky (but likely more rewarding) opportunity. That situation is the norm at many large corporations in highly regulated industries (government contract, aviation, etc). My first job was just like that, and I'm so glad I left.
