Howl at the Moon
Kool-Aid, and the drinking of it
I recently read a short blog post which changed how I want to approach this topic.
99% of the reason people want to work for a company is because they need money. That’s it. They want to be able to pay off debt. They want to be able to pay their bills. They want to be able to pay rent or their mortgage. They want to be able provide for their family. They want to be able to afford a better life. And so on.
I had originally wanted to talk about how companies try to motivate their employees through culture, but I think it’s worth addressing this topic and its duality first.
We do all work for money, except for a tiny minority of the population who are wealthy enough to work entirely in a charitable manner and choose to do so. For the sake of this argument, I’m going to pretend that that minority doesn’t exist, as it’s not all that relevant.
…find your most passionate engineers, cut their compensation in half, and see if they stick around. I guarantee you they won’t.
I don’t think we even need to go to half salary here. Most people around the world, including the West, don’t save that much money each month. They live hand to mouth. They use credit cards to deal with unexpected large expenditure or other forms of debt. I doubt most people would even stick around if their salary was reduced by 10%. If they did stick around, it would probably be because they couldn’t find the right job to move to yet - so really, they’ve got one foot out the door.
Only employees who are paid substantially more than they need in order to live could take that kind of hit and not feel it. Even so, many would take it as an affront and take that job offer they had in their back pocket… high performers who are paid more don’t usually find it hard to find work - it finds them.
What’s interesting though, and I’ve experienced this multiple times, is that being offered more money than you are on to convince you to leave doesn’t always have the same effect. In this instance, your company hasn’t done anything to offend you or drive you to leave, you have just been made an offer which is better in financial terms. Sometimes the offer can be much more than 10% better, but it’s still not a straightforward choice.
There are many factors which keep employees around, even when they are given better options:
Culture - if they like where they work because of the environment the company has provided in terms of values, hiring people of a certain mindset, ability to impact, hierarchy depth, transparency…
Team - it can be really hard to leave a line manager or team you love, especially when you’ve built the team!
Industry - some companies are fairly unique in that they are a mecca for people who are interested in that industry - like Lyst and Farfetch for Fashion, AirBnB and Expedia for Travel etc. It can be a real added bonus to work in that industry, even if you have a more generic role in an area like Tech, HR, Finance and Data. The context of your work is more interesting and valuable to you.
Work quality - this is a biggie. If you love the work you do, it’s very risky to move because there is a big chance that you won’t love the work at your next job, and an even bigger chance that you won’t love it as much. There is the old saying: “Love the work you do, and never work a day.”
Learning - if an employee feels like they are being developed well at their current company, they may be unwilling to move for more money because they perceive the value of their learning to be higher than the incremental pay.
Risk - whenever you move job (and this has happened to me twice earlier in my career), you can end up inadvertently in the wrong kind of job. This can be in terms of cultural fit, work fit, industry fit, team fit… there is a lot to go wrong. It’s usually impossible to say to your previous employer that you made a mistake and want to come back. They feel rejected and typically worry that you will then leave again soon, so would rather hire someone new.
You can even see employees turn down huge pay rises (I’ve personally heard of as much as 50%), when they value some of the things above1. This gap between a high package in the market and what is seen as “competitive” by a company, applied to all employees in a company, is essentially the value in getting HR right. Yes, there are also many compliance-related HR activities too, but a big thing that companies want from HR is to maximise this gap - to maximise the non-financial value of a role at the company. Doing this reduces headcount cost, which is usually the biggest operating cost of a company, therefore directly increasing profit or allowing the company to grow more in headcount2.
So why is there such a difference between being given a pay reduction by your company and a pay rise as an offer, when they can be proportionally the same? I think that the idea of a pay reduction destroys some of the non-financial value above, and removes some of the risk from moving, as you’ve already been affected badly anyhow. This is probably why pay reductions are uncommon and layoffs are not.
Most people who’ve studied management or economics are familiar with Maslow’s hierarchy of needs, which is often seen as flawed but useful:
Using this theory, you could argue that the non-financial value that companies are able to offer are higher order needs, built upon the lower order needs being fulfilled with financial reward (salary, health insurance feeding into safety and physiological needs being met). The pay reduction, therefore, is like kicking the bottom of the pyramid out - everything else comes toppling down. We can’t have a roof without any foundations.
You can see this more clearly when a person is choosing between two new jobs - the balance shifts towards lower order needs: more money and better health insurance usually wins. They haven’t worked at the new company, so it’s harder to perceive the potential non-financial value, unless the company is very famous for it.
Does this mean people only work for money and they don’t care about these non-financial rewards and higher order needs? Clearly not. In countries with a very high state safety net, where the bottom two needs in the hierarchy are almost met by default, you do see employees pick jobs more on higher order needs and non-financial value. This is where Maslow’s hierarchy breaks down, in part. Some of the needs overlap in priority, some people have them in different orders, we often don’t need them to be fully met before we go up…
There have been multiple times in my career where I could have earned more money by choosing to work for the bigger company, or staying at a company and tolerating what I hated about it to work my way up the ladder… but I’m not wired to do that. I like the culture of high growth, smaller, earlier, flat structure, high transparency, higher risk tolerance companies. There aren’t hard and fast rules - you can have big companies that feel like this for you in that specific aspect, you can also have small companies that are terribly bureaucratic.
These early stage companies often carry higher risks: higher risk of layoff, higher risk of failure, opportunity cost from being paid less in return for equity (which may not be worth anything in the end). There’s nowhere to hide, people are more direct (which I prefer). It’s very difficult to not care about your company and its mission - it becomes very clear when you don’t, unlike at a bigger company. I know there are many people out there who would cynically describe this as “drinking the Kool-Aid” and being a zealot.
What if it’s a choice? What if choosing to align your goals with your company’s was mutually beneficial? Perhaps making this choice increases the value of your own job to you. I’ve done this at companies in varying industries. As a young adult, I didn’t particularly care about Fashion, Data Quality, Semantic Layers, BI, Credit, Payments, Grocery… Each time, though, when I really enjoyed what I was doing, I chose to align myself with my company and make its goals my own.
Why is this any different to playing a board game? One week you could be Terraforming Mars, another you could be making wine, the next you could be a bounty hunter exploring the Outer Rim of the galaxy… each time you want to win and compete, for the fun of doing so.
What if the alignment was just as much for you as it was your company? And that alignment was something you chose to do wherever you worked to get higher value, both financial and non-financial from your work. Most people don’t have a clear life’s purpose, many people are fortunate enough to find something they are good at and like doing (myself included). Even people who have a clear intrinsic mission change this over time as their life and perspective changes, sometimes they even achieve the mission and move on. It would be convenient if your life’s purpose was mutable, and that for each time in your life you could change it as you choose. I think you can do this.
This is why it’s strange for companies to always expect that candidates will “want to work for them in particular” - many candidates can join and choose to want to work for them and be just as aligned as those for whom it is a long-term passion. In fact, they could be more aligned.
Sometimes people who have a passion for something join a company with a similar, but not identical, mission to them. This somewhat slight misalignment can be exaggerated in the person’s mind, because they feel so sure that their original thinking was correct or because they had a very clear expectation of what working in that company or role would be like.
The person who comes in unaligned and chooses to align, aligns themselves with the company’s values, like a recruit being re-formed by the military. Maybe their dedication to the mission isn’t as strong, but it’s definitely the same one!
It’s too easy to make arguments like this a dichotomy - “employees are either driven by money or mission”. Given most employees would jump ship at a 10% pay reduction, but most would also stay instead of a 10% pay rise… it’s clearly not that simple. They can choose to pick up a mission like a relay baton, and run it forward to the next person. In that leg it can be their mission, passionately-run and competed for, for a time. The money just allows them to compete in the race.
There are more than these features to a company that people value I’m sure. However, these were the ones that came to my mind and therefore are probably the ones I value the most, but they also seem generally well-discussed.
Many investors expect to see operating leverage, which is where a company increases its operating costs at a slower rate than its revenue, allowing it to become exponentially more profitable over time.
"So why is there such a difference between being given a pay reduction by your company and a pay rise as an offer, when they can be proportionally the same?"
The question you're posing here is a broader psychological/economic one, and goes beyond just deciding whether to take a job offer (or leave following a pay cut).
Tversky and Kahneman did quite a lot of well-publicised research on this (see Thinking Fast and Slow, for example). The general thrust of their argument about loss aversion is that people give more weight to potential losses than potential gains when making decisions, even if the actual value of the losses and gains are equal (and, to an extent, even if the value of the gain is greater than the value of the loss).