When employees are happy, you’re paying them too much
A friend of mine recently went to work for a 50-year-old 200-employee company that has bumbled along with modest success as a niche supplier in its (very large) market. She talked about how happy the employees were and how so many had worked there for decades. I said “That means they are overpaid.” She questioned me on this point. I cited a study of married people that found that each thought he or she was doing more than 50% of the chores. The explanation was that a husband is guaranteed to be watching when he himself is doing a chore, but doesn’t see all of the things that the wife is doing (and vice versa). The same phenomenon applies at work. An employee knows all of the things that he or she does personally. The employee isn’t aware of what the others in the company are doing. Consequently, the employee develops a major overestimate of his or her relative productivity and the percentage of overall work done. (Programmers, starting off with massive egos and having little contact with other human beings, are perhaps the worst overestimators of all, especially the 80% of programmers whose contributions are purely negative.)
An employee will overestimate his value to the company by at least a factor of 2. If he is not griping about his salary, it means you’re paying him at least twice as much as he is worth.
[Shortly after this conversation, the investor who had recently purchased the enterprise decided to fire the long-serving Chief Operating Officer.]
chris sivori
September 6, 2006 @ 10:40 am
What about people who are too passive to complain? I like your point and it has merit, however there are other factors at work. Also, if they’re not complaining maybe they’re not being worked hard enough.
Chris A.
September 6, 2006 @ 12:48 pm
I worked for (and still sometimes work with) a medium-sized publisher just outside of Milwaukee where the employees are very, very happy on very, very modest salaries. In fact, the company is renowned for its employee retention, as well as for the returning employee.
The secret? Jerks, and non-productive people, aren’t allowed to work there. Period. It’s basically a by-law. Under a very strict customer focus model, you might be cited for not making a fresh pot of coffee when you’ve had the last cup. You are expected to behave politely and respectfully. You arrive to every meeting 5 minutes early, no exceptions - and the meetings end on-time. . .also no exceptions. It’s a very good business model, and the reward isn’t in the dollar value for the employee as much as it is in the fact that you simply don’t have to put up with any surprises, or any harassing, mean, knobs. You even meet once a month to discuss how your department can make life easier for other departments. And, lastly, you get to work on making very cool hobbyist magazines and books.
So, while the above may be true in certain places, the other possibility is that it’s actually a great place to work.
Derek K. Miller
September 7, 2006 @ 3:52 pm
Actually, Joel Spolsky says it better:
http://www.joelonsoftware.com/articles/FieldGuidetoDevelopers.html
“Well, if it’s going to have to suck to go to work, at least I should be getting paid well.”
E McNeely
September 9, 2006 @ 8:13 pm
Hello Phil,
I disagree with your assesment. In some cases it may be true but there lots of people who work hard and would like to make a bit more money but don’t complain. Many times they are just grateful they have a job and the bills are paid.
BTW, I am a developer and I don’t overcharge - $20/hr.
Fab
September 10, 2006 @ 10:56 am
What about the other way round? If a company is really eager to have you, they’re probably paying you too little. Company wants to hire you if your cost (salary etc.) is smaller than your contribution, you want to work for a company if your salary is larger than your reservation cost (determined by alternative job options).
If these ranges don’t overlap, you won’t end up working for the company, if they do, you might, at a salary that is somewhere in that range. The closer to the bottom, the happier the company; the closer to the top, the happier the employee.
So, my rule of thumb for salary negotiations: if the company is very eager to have you, you’re asking too little. It’s good when the company is just short of indifferent about hiring you… (of course, you’ll be the first on the street then when shit hits the fan.)
Anyway, many more aspects enter here (for example, some companies are theorized to deliberately overpay because their monitoring cost is very large, so they want to make it extra costly for you to underperform, get found out and fired).
naum
September 12, 2006 @ 4:55 pm
Disagree totally, and the assessment is narrowly targeted, assuming that money is the primary reward for work.
As many who’ve labored at their passion can attest to, including you Philip, just engaged in something you really passionately wanted to do, and in turn, riches came. It seems the AAR always focus on the endpoint of financial reward, when it was never the motivating factor.
I recently took a job at 1/3 of the pay I was getting (at a startup which was close to half of what I was doing as a traveling consultant) and I’ve never been happier — at a spot within biking distance of my home and on stuff that I get to build myself…
John
September 23, 2006 @ 9:54 am
Silly, silly post. Are you implying that companies should strive to create unhappy employees?
Simple formula for any company in terms of salary and people is: pay great people great sums of money and pay mediocre people standard salaries. You need mediocre folks at companies just as much as you need top talent (unless you can automate tasks like HR, Accounting, etc.).
MR
October 13, 2006 @ 6:40 am
Step one is paying a living wage to employees. If company salaries are not keeping pace with inflation due to profitability demands by owners, responsibility to shareholders, or external factors, employees will be unhappy and turnover high.
I live in an area where home values have doubled in the last five years and employee raises at our company have averaged 2-3% yearly. People are not only leaving the company but they’re leaving the area as well.
Several studies over the years suggest that high salaries are not critical to employee happiness. Once basic needs are met, other factors come into play. There’s no shortage of $8 an hour service jobs where I live but who can support a family on that wage when the average home price is $280,000?