Lets assume that we are good friends and work in the same office complex.
Once in a while, in the evenings post work, we drop into a really nice jazz bar around the corner and enjoy some nice cocktails – made more tempting by the ‘happy hours’ that run till 7 pm (meaning buy one drink and get one free).
One day, as usual, we head to the bar and instead of the small blackboard outside the bar that says ‘Happy Hour on NOW’, it reads ‘Employee Hour on NOW’.
Intrigued we step in and get a bar stool each. On equiry, the bar tender says very grumpily – ‘you guys ain’t gonna like this… during employee hour, you will pay TWICE for the same drink – NOT get two drinks for the price of one’.
First we think its a joke, but then seeing no one around, we shrug off and walk towards the exit. The barman grunts loudly behind us and yells ‘thank the employees for this – they demanded a 50% increment – so the owner said – sure why not….lets also raise our margins 50% (double the price of drinks) and make it happen’…….
So, I hope you have understood the lesson by now.
If the price of the goods and services and entertainment you pay for suddenly is increased by 50-100%, will you EVER GO FOR IT?
Well, when some employees jump jobs like frogs in a pond and demand 50% increments for each jump – this is is exactly what they are expecting!
Businesses run on people like you and me. Think of the job you do and the rate cards you sell at (if you are into sales) or the rate cards your colleagues in sales operate with. Ask yourself or them if they can RAISE THEIR SALES PRICES by 50% OVERNIGHT?
A country expands in productivity and growth each year and that is the anual growth %. India is growing at 8%. Add a couple of points to it and you get inflation – which is 10% in India currently.
Just managing to recover inflation year on year is a major challenge for most businesses – forget increasing margins 50% YEAR ON YEAR!
These same businesses operate on COSTS – a bulk of which are salaries. The rest of the costs are linked to purchases etc from other Companies that in turn pay salaries. If the salary base of these companies goes up 50% EACH year – most of these ventures will close down.
So, the moral of the story is:
– Understand the business of your COMPANY BEFORE you try and make reasonable or unreasonable demands. Think HOW your company will get more revenue to pay for your increased costs.
– If you have significantly IMPROVED your skills (say from being an account executive to a effective SALES person) – then sure you need more compensation – but on the basis that you should be earning MORE for your Company in return!
– This does not apply to entry level jobs or people who are between industry changes and even for entrepreneurs who switch from being dependent on equity to taking up a job (if I were to ditch all my businesses and join a VC as an employee).
Real businesses run in the real world and sell to people like us. Think of yourself and what you are prepared TO BUY before you threaten to TO SELL yourself for more….
*****
Interesting and related posts by me:
The perils of Job Hopping – “which train are you riding“
What a job is really worth “Are you bribed to work or is your job a bribe“
jitendra.satwik
Very Good Article .. Alok !!!
Prajith Nayar
Alok
Arent you speaking of a scenario where all employees get 50% hike. When people ask for 50%, it usually stems form the belief that either they are far better than others or everybody else got it, so why not me.
Another proxy for this is the promotion every year syndrome. Being part of all sides of the equation in past, I can probabaly state with my own experience, the issue is crappy managers/ supervisors/decision makers.
Its very usual that corporates rotate promotions and straight linear relationship with performance does not exist. Another reason is labor regulaitons. Iam sure every company is allowed to promote a guy to next level if he achieves 200% of his targets but they are almost never allowed to demote a guy for ahieving only 50% of his target. Hence the practice of biased and unrealistic goals which in turn make a mockery of performance management system.
In your example I would say the bar owner was just using a clever tactic to screw his employees. In an ideal scenario the top performers would know why they are good and would be getting paid handsomely and bottom would know why they are not meeting the expectation and improving. Alas, ideal world hardly exists and most employees are self centered. Rightfully so. Many of the industries like bnaks etc enjoy huge margins however the income distribution is disproportionate from top to bottom and again rightfully so.
This is also real world. Remember the tips in negotiation 101 classes, its usually fruitless to negotiate on basis of costs as you will end up being squeezed. The idea is to negotiate on value and hence employers should also learn and negotiate on value they add to employee,not the salary they pay. This is an employee view I guess 🙂
Alok Rodinhood Kejriwal
the intent of my post is not to discredit merit – rather explain to newbies and oldbies that increments come from actual business growth.
lost of start ups fail due to massive costs and overheads that remain unmatched with revenue.
Abhishek Nichani
Alok,
In this case I think the owner didnt utilise the employees potential and hence he couldnt reward him with a 50% increment.
If an employee outperforms the target 200% while other just hit the target then employee would then believe he deserves the raise.
If the owner was smart he would have offered ESOP (Employee Stock Option) which would motivate him to perform better.
Also, situations like these test the owner (in this case entrepreneur) – employee relation, Everyone know if there is a 2way negotiation so the employee will start higher and has a buffer t come down and the owner will start lower and keep a higher buffer to finalise. It also tests the entrepreneur’s leadership and team building quality. If an employee is good enough for a 50% raise then the owner would create more avenue to better utilse the employees efforts, like create another vertical for him to manage, channeise his efforts so he can train a team to deliver results like him which would then result in much high earnings.
But again, that is the employee is good enough to get this. If he is not then you wont mind letting him go. If a person is not good enough for the remuneration he is asking then he will stagnate his earnings sooner rather than later even if he jumps the ship.
Feedback and comments welcome.
Roshan
I think its just economics of demand and supply. An employee will do..what is financially best to his or her life and career prospects. Its a fact that salaries are raising irrationally (like valuations :D) but there is nothing a business owner can do about it. and No one will justify such a explanation that 50% salary rise is unsustainable.
Anushka Shroff
Dear Alok
At a Company Level, we work on a revenue generating model. Whereby, we have to achieve our EBITDA targets and budgets . Everything is about numbers and net profits.
At the end of the year my team and Myself have achieved lets say for eg. 90 Lac, which mean
HENCE ..for My team and Myself ” I want a 50% Increment’ or more and we’ll DEMAND it …!
Don’t you agree …..? !
Regards
Ravi
The entire article is a truth considering the company has not grown at all in the past. This is a typical start up and small business problem reflecting the entrepreneurs frustration of not being able to hold back good and performing employees because they are more in demand some where else.
Rakesh Sidana
Good stuff! Alok, but employees have their own story and they do not agree on this. The gap remains between “management” and “employee” understanding this stuff. Newbies never understand, who just passed out with their bigger dream of getting huge amount of salary packages. Corporates companies have made difficult for start-ups offering newbies high salaries for doing nothing.
Alok Rodinhood Kejriwal
not true entirely. I argue that ANY business cannot grow at 50% – sure you can skip from company to company – but then the employee’s skill set should also grow commensurately?!