Incremental Pay Raises

The Problem

Achievement feels great but the feeling doesn’t last. Whether you earn a degree, get a job, get a promotion, get a big bonus, or create something people like, ultimately the feeling of achievement fades. Between achievements people often find themselves feeling stagnant. This is mostly good, as it forces more people to go out and achieve more and likely makes for a more productive society.  However, in most corporate hierarchies promotions are usually years apart, even for the best workers. You can help keep people happier in stagnation with things like casual dress codes, catered lunches, stocked kitchens, outings, Paid-Paid vacations, daycare service, and flexible work schedules. We see the big tech companies using these methods and they seem to have some effect. But what if a company doesn’t have the deep pockets that companies like Google and Facebook have, what can they do?

They can change the way they pay, without changing the amount.

Variation is what makes us feel alive. It is what keeps us sharp. Yet the way we pay salaried workers is the definition of monotony: Lack of variety and interest. Paychecks are paid, without ceremony, by direct deposit into checking accounts for the same amount over and over again. Once a year the amount is revisited as part of a generic annual review. The way we are paid does not align with the modern understanding of human incentives.

A Solution

Raises should be monthly, if not bi-weekly, in smaller increments.

The problem we are addressing is that not even huge achievements feel great for long. Within weeks, maybe months, the feeling goes away. A typical annual raise of 2-3% for someone making $60,000 a year comes out to $1,500. If we work hard all year and at the end of the year you are given a 2.5% raise, it’s not big enough to get excited about. We do the math and think “before I was making $5,000 a month, now I am making $5,125 a month.” We’ll feel good about it for a few days. MAYBE we’ll get excited the first one or two times that $5,125 directly deposits into your bank account. Before long, we’re over it. This is the nature of human achievement.

The resolution to the problem? More achievements.

The problem demands something that makes people feel as though they aren’t stagnant, as though they are moving forward. Even if the feeling is of moving forward slowly, it is better than stagnation. Incremental raises would address this problem. Pay John Smith more in April than he made in March. Pay him more in May than he made in April. Even if it’s only $10 or $20. The amount will be small but most people will notice it. People cancel $8/mo. Netflix subscriptions, people cancel $10/mo. Planet Fitness memberships, they downgrade cable packages to save $30/mo. Small variations do matter. No, they don’t get people dancing down the office hallways, but neither do 2-3% raises.

Incentive Comp

Monthly raises would help alleviate the mental rumination that comes with stagnation. It is hard for ambitious people to stand still and not think about how they are standing still. It is a real distraction that likely has real effects on productivity.

Incremental raises would also provide a opportunity to more frequently address performance. Mangers could choose to suspend an employee’s raise in month’s of poor performance or to increase it in month’s of exceptional performance. No one wants to put their entire salary on the line. They have bills to pay and want a certain amount of stability. Frequent incremental raises tied to performance is exactly the level of variation that most people want. Most people want constant progress without risk. Companies can take a big step towards addressing this desire without huge costs. No daily, fully stocked kitchen needed.

Fin 

Extra: An Interesting Comparison

This problem reminds me of one of the best speeches in the movie Moneyball. The movie is based on the true story of Billy Beane and how he adopted a new approach to baseball. His approach changed baseball forever. In the movie, Brad Pitt plays Billy Beane. Beane is the General manager for a baseball team who just lost their three star players. He sits down with all his coaches and advisors to figure out what to do and how to get the team back on its feet.

moneyball-brad-pitt

Grady Fuson (Team scout): We’re trying to solve a problem here.
Billy Beane (Team General Manager): Not like this you’re not. You’re not even looking at the problem.
Grady Fuson: We’re very aware of the problem.
Billy Beane: Okay, good. What’s the problem?
Grady Fuson: Okay, Billy. We all understand what the problem is. We have to replace…
Billy Beane: Good. What’s the problem?
Grady Fuson: The problem is we have to replace three key players.
Billy Beane: No. What’s the problem?
John Poloni: Same as it’s ever been. We’ve gotta replace these guys with what we have existing.
Billy Beane: No! What’s the problem, Barry?
Scout Barry (Scout #2): We need three eight home runs, a hundred twenty R.B.I’s and forty seven…
Billy Beane: Aaahhh! The problem we’re trying to solve is that there are rich teams and there are poor teams, then there’s fifty feet of crap, and then there’s us. It’s an unfair game. And now we’re being gutted, organ donors for the rich. Boston has taken our kidney’s, Yankees takin’ our heart and you guys are sittin’ around talkin’ the same old good body nonsense, like we’re selling deeds. Like we’re looking for Fabio. We’ve got to think differently.

The way I see it, corporate pay structures aren’t that different from baseball pay structures. Google can provide subsidized gourmet lunches, massages, and free stocked kitchens. But Google is like the Yankees. Most companies aren’t the Yankees. They have tighter payrolls. Yet, like a baseball team, they almost want to attract the best talent so they can win. It is one of the many places where corporations need to think differently. A hundred years from now, big corporations will realize how much financial and human capital they’ve squandered with their big, archaic systems. Pay structures will be more inline with our understanding of motivationmanagers will be old news, and I doubt college degrees will be required. Instead their will be a laser focus on people and performance.

In Moneyball, Jonah Hill plays the baseball genius Peter Brand (who is a real person, who really came up with all this and changed baseball forever). Brand is the one who gives Bean the answer he was looking for.

moneyball-02

Peter Brand: There is an epidemic failure within the game to understand what is really happening and this leads people who run major league baseball teams to misjudge their players and mismanage their teams. I apologize.
Billy Beane: Go on.
Peter Brand: Okay, people who run ball clubs, they think in terms of buying players. Your goal shouldn’t be to buy players. Your goal should be to buy wins and in order to buy wins, you need to buy your run. You’re trying to replace Johnny Damon. The Boston Red Sox see Johnny Damon and they see a star who’s worth seven and a half million dollars a year. When I see Johnny Damon, what I see is…is an imperfect understanding of where runs come from. The guy’s got a great glove, he’s a decent league off hitter, he can steal bases. But is he worth the seven and a half million dollars a year the Boston Red Sox are paying him? No! No! Baseball thinking is medieval, they are asking all the wrong questions and if I say it to anybody I’m…I’m ostracized. I’m a rebel, so that’s why I’m…I’m cagey about this with you, that’s why I respect you Mr. Beane and if you want full disclosure, I think it’s a good thing you got Damon off of your payroll. I think it opens up all kinds of interesting possibilities.

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