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Alok's Posts / Essentials

Getting salaries structures wrong and paying the price for it…

This morning, I read how Google gave away so much salary and bonus money to employees in it’s self drive car business, that they simply quit having become extremely comfortable.

Via The Verge – “Bloomberg says that early staffers “had an unusual compensation system” that multiplied staffers’ salaries and bonuses based on the performance of the self-driving project. The payments accumulated as milestones were reached, even though Waymo remains years away from generating revenue. One staffer eventually “had a multiplier of 16 applied to bonuses and equity amassed over four years.” The huge amounts of compensation worked — for a while. But eventually, it gave many staffers such financial security that they were willing to leave the cuddly confines of Google.”

Two staffers that Bloomberg spoke to called it “F-you money,” and the accumulated cash allowed them to depart Google for other firms.

I shuddered as I read this over and over again. I had made a massive blunder with a CXO hiring way back in 2004-5 that led to the person earning so much, so quickly, that later on as the business I had appointed him to handle began to slow down, his high salary completely ruined the business. The impact was so bad, I had to shut down that enterprise a few years later.

My mistake was that I had pegged his salary as base salary + % of Top line (which I wanted to show growing at a massive pace). The mistake I made was I never anticipated that the margins of the business would deteriorate considerably, making pegging salary pegged to Top line a really really stupid idea.

I swore to myself never to try and be ‘over experimental’ in compensating people because once an equation was created with too many moving parts, you had no control which part would spin out of action.

It is kind of gratifying to note that Google – one the most professionally run and top valued Company’s in the world also makes such mistakes sometimes.

In my current business, salaries are fixed with increments each year + a commission structure for sales (paid when moneys are received 🙂 ). ESOPS of course are part of the glory and they have proved to be a massive success for us and our employees.

We avoid bonuses because:

a) they are very confusing to explain, communicate and change when targets go haywire due to changes in the business environment.
b) they seem to be more clever HR tricks to hold back people vs. compensating people for a job well done.

We are good the way we are, so far!

What are your compensation best practices? Any innovations you have implemented that have really worked well?

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