March 25, 2018

But We Cannot Afford To Pay Our Employees

A company generates $50,000,000 in annual sales. This company pays marketing vendors a whopping $15,000,000 to generate sales.

The Executive Team is frustrated. They have a hard time keeping talent in-house. "We cannot compete on salary."

I offer the company an option ... how about a bonus structure that rewards employees when the company has a good year. A Director earning $120,000 a year could make a 40% bonus, earning an additional $48,000 if the company has a good year.

There's an interesting response to this proposition.
  • "We can't let the employees earn a disproportionate amount of pay if the company does well."
Of course you can!!

You do this with your vendor partners all the time. 
  • What happens when Search performs well? You invest more in Search, and your Search vendor gets paid more.
  • What happens when Catalogs perform well? You invest more in Paper, Print, and Postage. A veritable plethora of vendors get paid more.
  • What happens when Merchandise performs well? The vendors you bought the merchandise from get paid more.
  • What happens when the Employees who hired the vendors to perform well cause the Company to perform well? They don't get paid more than maybe a cost of living increase.
How you pay your employees says a lot about who you are. A traditional company that rewards vendors for doing well but does not reward employees for hiring the vendors who do well will have perpetual talent challenges.

Business Principle #14