Is it time for a general compensation review?

It’s been my experience that the quantity of tech jobs tends to cycle between feast and famine. We seem to be entering a feast period where the number of jobs exceeds the number of candidates. Couple that with the fact that our economic system seems to balance wages to match the job demand and you have the makings of a perfect storm.

I’ve been eating out more lately for lunch and that’s not because I enjoy eating out, it’s because there have been so many farewell lunches. Tech workers in the trenches are the first to move because they are just starting their careers and they are the most attractive to employers. Let’s call this stage 1. Their skills are fresh and they have enough experience to contribute from day one. They tend to be the people that get forgotten when times are lean so employer’s don’t have to offer large increases to get them to jump.

When that well runs dry or when you need experience to guide the team, employers move up the food chain to attract people with more experience. Let’s call this stage 2. If employers don’t have their people locked in through stock options or competitive salaries and bonuses, the shell game continues.

I was speaking to a tech company CEO last weekend and he said that with the exception of the new grads that should be available in a few weeks, Stage 2 is already happening.

So what can you do to protect yourself from high employee turnover? Well some of the things that we talked about already, stock options, competitive salaries, bonuses, better work environments, more vacation, flexible work hours and locations, etc.

Tech workers are not your typical employees. They tend to be less motivated by cold hard cash and more motivated by work environment, interesting things to work on, career development, travel and the list goes on. Compensation does play a role, but t0 increase the output of your team, you have to do more.

There will be cases where it’s time to move on in order to advance a career and there is not much that an employer can do about that other than to say thank you for your service and all the best in your future endeavours.

I did come across a good book a couple of months back that I blogged about already though. Check out “The Alliance” by one of the founders of LinkedIn, Reid Hoffman. Reid suggests that what worked at LinkedIn was to treat every employee as a contract worker in that they have something to offer the company and the company has something to offer them. He calls these fixed periods “tours of duty”. It allows the employee and employer to have a clear understanding of what is expected and the fixed term bounds everything.

Many employees sign up for back-to-back tours of duty, but others do their tour and move on. If an employer wants to retain a key employee, they are motived to offer that person something that will help them achieve their life goals. I was fascinated as I read because I would love to work in a place like that.

In any case, the tech industry is entering a shake down period, so if you don’t want to suffer from  (brain drain and retrain), it’s time to make a change.

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One Response to Is it time for a general compensation review?

  1. Jamie Beu says:

    “Reid suggests that what worked at LinkedIn was to treat every employee as a contract worker…”

    What would also help is if FTEs were not paid so much lower wages than contractors. Yes, there is some overhead to an FTE that doesn’t exist with a contract worker (e.g., insurances, 401(k) match, etc.), but there is also overhead for contractors (namely, recruiting commissions, ~30%) that don’t exist for FTEs.

    Mostly, though, some managers are simply being lied to by their HR departments. I had one manager tell me that the rule-of-thumb they were told by HR is to mark-up the annual salary by 50% to figure the actual cost to the company after overhead! While that may be true for entry-level hires, that 50% overhead simply cannot be true for more highly-compensated employees. You cannot honestly tell me that someone making $120k would cost the company $60k in medical (~$12k/yr), vision ($250), dental ($2k), 1-yr term life ($1k), and 401(k) costs (4% match=$4800). My estimate is $20k, not $60k.

    Perhaps the compensation problem is: too much HR overhead. Maybe a solution would be to treat HR like temp/contract hires: contracted to put a system in-place, and then maintained by a skeleton crew.

    Please, correct me if I’m mistaken.

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