The Best Way to ‘Pay to Stay’

As we approach the end of another crazy year and businesses continue to bounce from week to week between gunning the gas and hitting the brakes in their hiring, there’s been a lot of talk about compensation levels. The discussion ranges from looking backwards — hazardous duty pay and “thanks” for sticking around payments — to addressing current hiring needs. That includes offering bribes to workers to come back. Which is stupid. And then on to the future questions about what kinds of post-pandemic salaries are going to be required — especially given the competitive demands for top talent — for the leadership teams that have not only successfully survived but in some cases already started to quickly bring their businesses back from the brink.

My sense is that the company execs — especially in pre-profitability mode — are going to be very surprised at how reluctant and slow their boards and comp committees are going to be to approve any significant bumps in six-figure salaries regardless of the circumstances, including competing offers, until the dust really settles. They’re going to wait to see what the whole budget packages are going to look like for next year. And anyone who thinks we have a clue about what the next 16 months will look like in terms of the economy needs far better glasses and a reality check. No one knows, which, unfortunately, gives the reticence of the ultimate funders more support and justification than they probably deserve.

Needless to say, it’s a lot easier and less stressful to make these kinds of do-nothing calls sitting safely in a board room or on a Zoom call with your fellow board members than when you’re the person sitting across the table from a key employee (and a definite keeper) who has just explained why they think they need to accept a better outside offer. Everything is easy for the people who don’t have to run things themselves. But it’s the folks on the front lines who have to worry every day about rebuilding their businesses, keeping their people in the boat and content (or at least not actively unhappy), and working all this magic with the least amount of dollars and going-forward commitments possible.

And, in case anyone has wondered recently, the gig on modest, multi-year, slowly vesting options for the troops is pretty much up and over as well. You can’t pay your over-priced rent or feed your family with futures. If you don’t necessarily believe that, just ask your peers and friends what they think about such offers. They’ll most likely tell you that you need more out-of-the-money options like a fish needs a bicycle.

So, if stock options are not likely to be very effective, and long-term salary adjustments aren’t going to fly, but the board still wants to see your plan as soon as possible to a) stem the ongoing attrition, b) attract new talent to fill the holes and support new growth, and c) keep rebuilding the business to where things were before Covid-19, what exactly can you propose to respond? My own preference, in addition to limited and very strategic salary changes, is to use retention bonuses. Obviously, every business is going to have some different concerns, various prospects, and their own reactions to the problem, but there are a few approaches that make a lot of sense even if you need to adapt them substantially to your own situation.

1. Limit your action horizons to realistic timeframes.

While sooner is better than later in terms of taking action, shorter is better than longer in terms of the kind of forward-looking expenditures that your board and team are going to be comfortable with. Making a plan through year-end makes a lot more sense now than signing up for 12-month or longer obligations when you can’t even accurately estimate your expected demand or required headcount or even the direction that either may be headed. Band-Aid payments, like brief bumps or one-time bonuses, are a better bet right now than budget-busting salary adjustments, which you’ll be stuck with for a much longer time if you can even get them approved.

2. Target the people who give you the biggest bang for the buck.

While every business believes that it could use more skilled employees, few folks would argue that in tech-centric companies the overwhelming pressure to hang on to key players is highly concentrated in two main areas: engineers at every level and high-level operations personnel. As you plan to attract and retain your most important players, keep in mind that talent and contribution are two different things. You need to focus on the players who make the greatest contribution to the team’s efforts and success, both in terms of their individual actions and in terms of their leadership of others. As some football coach used to say, “I play my best 11, not my 11 best.” That’s even truer when you’re talking about software development and support, which is 100 percent a team sport.

Another key part of the calculation is influence. When you’re talking about someone walking out the door, many young managers don’t understand that it’s often not just one person who goes, it’s his or her little group of friends, peers, and followers that leaves as well. This can be unbelievably devastating in cases where that mini team may be responsible for an entire part of the code base, operation, or other function like sales support. Even if you just focus on the current keepers, how you treat them isn’t lost for a moment on their followers, who may grow to be important parts of the future team that’s really central to your success. If they don’t like how their own career path looks going forward or believe that the company cares about it and them as well, they’re likely to bolt at the first opportunity.

3. Decide how much to offer and stick to your guns.

The hardest decision at the moment, assuming that targeted salary bumps will only get you part of the way, is whether concrete and specific retention bonuses — payable at year-end, based partly on company performance through that period — make sense. Even more critically, how big do those payments need to be to make a real difference? I’d suggest that, as long as everyone acts in good faith and believes that these are real promises, it makes a lot of sense to commit a finite, one-time, substantial sum of dollars to the goal of keeping the key members of the team together. Handle this process carefully. Don’t turn it into individual negotiations; it’s got to be an announcement relating to various specific groups of employees, not a one-off reaction or a response to any one person’s threat to leave. The amounts in question, especially relating to relatively short periods of time, don’t have to be breathtaking or life-changing, but they do have to demonstrate a serious effort to reward each person’s efforts, loyalty, and commitment to the firm.

4. Don’t try to do cheaply what you shouldn’t do at all.

You will not make everyone happy; that’s not possible. Likewise, it’s also not worth making a half-assed gesture to a bunch of your employees that won’t be impactful and is more likely to offend than placate them. Treat everyone within a given group fairly and equitably, but don’t try to spread your largesse so broadly that it loses value. If you handle the plan and the communication reasonably well, even the people who didn’t benefit will grudgingly acknowledge that it makes sense for the business to take care of those who did. Human nature being what it is, they may not say this out loud, but they’ll know it in their hearts.