One for You, Ten for Me: When Does Excessive Pay Alienate Workers?
“That’s highly unusual,” John said.
When John spoke, I listened. After all, he was a senior managing partner at one of the largest private equity funds in the world. His fund also played a big role in my life as the largest shareholder in the company I cofounded and led for 15 years, Integra Telecom.
Together, John and I debated the merits of the allocation strategy I had recommended regarding how to divvy up the stock option pool that the company would award to its executives and, if I had my way, many of its middle managers and front-line employees.
Importantly, we both knew that our debate might impact the personal wealth-building opportunities for many people. The stakes were high. The largest newspaper in the area where Integra was headquartered, The Oregonian, had recently reported that Integra was valued at $1.8 billion, and we were aiming even higher.
“Most of the companies we invest in typically allocate stock options to only a handful of key executives,” John continued. “Are you sure you want to do this?”
I explained that this less conventional approach of spreading the future wealth much more broadly best positioned our company and best fit with the culture we were trying to build. Our strategy was to provide the best service experience in the industry, and my team and I knew that engaged, committed, and passionate employees were the key to executing on our strategy.
“It’s important to be able to look an employee in the eye and say, ‘We will all share in the wealth we build together,’” I remember saying.
I would like to say that I won that debate. In the end, however, I got my way because my “highly unusual” approach did not require any further sacrifice from the shareholders. They had already approved the size of the stock pool; I was simply proposing a somewhat unconventional approach regarding how to divvy up the pool. I suspect John was thinking to himself, “If you want to sacrifice some of your and your executive team’s future wealth for the sake of culture, go ahead. As long as the team performs and it doesn’t cost shareholders anything, be my guest.”
That was not my calculus, though. I knew we had grown from a startup to a $1.8 billion valuation largely because of our people and their shared commitment to our mission. I knew that we would become much more valuable under this compensation and cultural philosophy — and that my bank account would be well rewarded.
I later told others, “I would rather have a smaller piece of a larger pie than a larger piece of a smaller pie.”
At the time, my compensation approach had not yet been validated by Darrell Cavens (founder and CEO of Zulily) or the other seven leaders who contributed to my book Fusion Leadership: Unleashing The Movement of Monday Morning Enthusiasts.
Fusion leadership, as the name implies, explores the question of how to “fuse” employees together, building a high-performance culture around a shared purpose or cause. In my book, Cavens, Chip Bergh (CEO of Levi Strauss & Co.), and six other leaders shed light on specific questions regarding the behaviors of leaders, which behaviors fuse teams together around a shared purpose, and how those behaviors differ from those that drive people away from an organization.
My debate with John related to the bigger culture question every entrepreneur and CEO should ask: “How much do I pay myself, and how much do I pay others on my team?” This question is not about right and wrong, although there certainly are ethical aspects of the matter. Rather, the question is about exceptional performance, and the answer to this question creates a foundational component of the broader culture-building process of fusing teams together. Fusion leaders obsess over techniques to connect each member of their team to their organization’s purpose, citing compensation as a key tool in connecting those dots.
Leaders who ignore this question — or worse, leaders who run over the top of their people while grabbing every nickel they can for themselves — are often quick to defend their actions. Their argument goes something like this: My employees are making a fair trade, exchanging their time for our “market-based” compensation. While that may explain the economic “trade” of time for money, it fails to answer the core question as to whether that leader is contributing to a culture of engaged employees or to a culture of clock-punchers. These leaders run the risk of alienating their teams and delivering the message that “you show up on Monday morning just to make me more powerful and more wealthy.” That message is clearly demotivating, and it is one that will drive people away from an organization and its purpose.
So, what’s the answer? How much should you pay yourself (as the leader) and how much should you pay others? It’s simple: Identify the amount of total compensation (assuming everyone on your team knows the numbers) that just begins to communicate that you are more interested in your personal wealth than you are in your organization’s purpose. Once you calculate that amount, award yourself a compensation package that adds up to one dollar less than that amount. With this approach, you can begin to answer that question: “How much should I pay myself, and how much should I pay others?”
Structuring your compensation philosophy in a manner that fuses your team together around your organization’s purpose will make you and everyone else on your team much wealthier because everyone will be much more engaged — even if others view your approach as “highly unusual.”
Dudley Slater is coauthor, with Steve Taylor, of Fusion Leadership: Unleashing The Movement of Monday Morning Enthusiasts.