Over the last year I’ve spent a fair bit of time talking about Dan Price and his experiment in raising the the minimum salary at Gravity Payments to $70,000 a year.
Wages are a devilishly tricky issue. They’re not the best predictor of employee satisfaction. High wages won’t guarantee success. And managers rightly worry about overpaying an under-performing employee.
Wages are tricky because when you hire an employee, you have a problem: you have work that needs to be done and you need someone who will just do it but you don’t really know if you can trust them.
And so we’ve come up with an elaborate set of tools to help weed out the employees we can’t trust. We ask for resumes and then screen them against the minimum qualifications for the job. We define KPIs and MVPs and measure them ad infinitum. We institute 360-degree, peer-based, annual performance reviews and grade our employees against predefined rubrics. All the while, we’re setting expectations and looking for signals about whether we can trust them.
It’s not just us. Our best employees hire us just as much as we hire them. They know that they shouldn’t just take a job because it’s available. They have goals of their own and they’ll use the opportunity to work for us as a platform from which to reach their own goals. And like us, they’re constantly watching for signals about whether they can trust us.
At its core, then, the employment relationship is just that: it’s a relationship.
As with any relationship, the initial signals we send about our intentions will strongly influence its eventual success. Long-term relationships can be strengthened by the shared experience of the group. But at the beginning of the relationship, the signals are all we have.
Because the signals are all we have, getting the conversation about wages right is critical. What we offer will stand as a proxy for our expectations about the relationship with our employees. Without the benefit of experience (and often with it) our employees will judge our commitment to the relationship based on how we propose to pay them.
That’s why paying employees like Dan Price does is the right idea. Paying employees significantly above the market ought to make us very careful about properly defining the relationship with them because it will be a costly mistake if we don’t. And when we put our money where our mouth is, it’s hard to ignore.