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When Should You Cut Your Own Pay?

March 09, 2017

Would you take a pay-cut for your team?


That is the question few of us ponder, but business leaders sometimes face in an increasing complex talent retention environment. We sometimes hear about it in entertainmentand sports, but is it right for your team?


Several years ago, one of our clients worked for a Wall Street firm that had cut back bonuses for junior associates. This was a big deal, as even for junior associates, bonuses were a significant percentage of their annual compensation. It was driven by a larger industry downturn, so changing firms wasn't really an option. As a result, our client swallowed his disappointment. However, unbeknownst to him, his boss had arranged to have a significant portion of his own bonus transferred to our client. After our client was told, what struck him was he reacted less to the money (though it was appreciated), and more to the concrete signal that they were all part of one team. The message of respect and camaraderie was loud and clear. Their bond continues to this day.


Years ago, a friend told me, "Always be good to your concierge or waiter. There will be moments in time where they are the most important person in your life." We have certainly experienced that, through special service during an important client dinner, or managing a critical delivery of documents. In fact, we now preach a broader form of that mantra to teams we advise; recognize the key skills that each of your teammates contributes, and realize that there may be times each of those skills is most important to your team's success. This mentality has been documented elsewhere in society. Anthony Bourdain highlights the importance of sous-chefs, bread-makers, and other restaurant staff to the success of chefs in Kitchen Confidential, NFL long-snappers have the longest careers with little recognition, and even US Supreme Court decisions appear influenced by clerks who work for Justices. The same is true in business.


As you look at your own teams you manage, consider who might have skillsets you cannot do without. They may not seem like big things at first; the person who injects humor into stressful meetings, organizes social events, or can create executive-level presentations in half the time of anyone else. Or more importantly, someone who can give you unvarnished opinions to complex problems. How would your team operate if they left?


If the answer is "much worse", consider sharing more of the team's payoffs with them. Remember, success in business is a marathon, not a sprint. Compensation still accounts for roughly a third of what drives job satisfaction for ProValues users. If keeping your team together is worth a lot more to you than your next-best option, digging into your own pocket to ensure team happiness will still ensure you come out ahead. A common trap we see business leaders make is when they focus on how their team members may be worse off if they leave their team, giving leaders perceived leverage to keep more of the team's bounty. However, research shows that people act on perceptions of fairness, even if those actions would appear to be against their own self-interest. Not sharing often makes you worse off in the long-run.


Of course, this isn't to say you should start throwing money around blindly. Rather, make sure you consider all the benefits of compensating your team that extra mile. You might find that a pay-cut leads to a payoff for you in the long-run!