August 18th, 2018
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: firstname.lastname@example.org
Imagine that your recruiter manages to find a software engineer with all the credentials you need, and your team loves her, but she has an offer from your main competitor that’s $35,000 more than what you were prepared to pay. In determining what to offer, consider the difference it might make to the future of your business if you bring her in rather than settle for your second choice—who may be a distant second, and whom it will take three months to hire because you’ll keep looking for someone with the skills and talent of your first choice. How much added revenue might that great first choice produce? Might she ensure that you beat your competitor on the launch of a fabulous new search system—especially if she gets started now rather than three months down the road? How much ad revenue might she bring in by improving your targeting? What about the value of her management experience—might a key member of her team who gets an offer from another firm decide to stay because she’s a great leader? And what about the value to you of her not working for your competitor, particularly if your domain is undergoing rapid innovation?
Current market demand and salary surveys can’t help you calculate these future gains. I’m not saying there’s no value to benchmarking, but I advise forgoing elaborate calculations based on what other companies are paying right now; that’s comparing apples and oranges. It’s better to focus on what you can afford to pay for the performance you want and the future you’re heading toward.
A candidate may have skills that can’t be measured by salary surveys.
Once you’ve made an offer and hired someone, you need to keep assessing compensation. I learned this during a period when Netflix was losing people because of exorbitant offers from our competitors. One day I heard that Google had offered one of our folks almost twice his current pay, and I hit the roof. He was a really important guy, so his manager wanted to counter. I got into a heated e-mail exchange with his manager and a couple of VPs. I wrote, “Google shouldn’t decide the salaries for everybody just because they have more money than God!” We bickered for days. They kept telling me, “You don’t understand how good he is!” I was having none of it.
But I woke up one morning and thought, Oh, of course! No wonder Google wants him. They’re right! He had been working on some incredibly valuable personalization technology, and very few people in the world had his expertise. I realized that his work with us had given him a whole new market value. I fired off another e-mail: “I was wrong, and by the way, I went through the P&L, and we can double the salaries of everybody on this team.” That experience changed how we thought about compensation. We realized that for some jobs we were creating expertise and scarcity, and rigidly adhering to internal salary ranges could harm our best contributors, who could make more elsewhere. We decided we didn’t want a system in which people had to leave to be paid what they were worth. We also encouraged our employees to interview elsewhere regularly. That was the most reliable and efficient way to learn how competitive our pay was.