WHERE IS IT WRITTEN?
Where is it written that a 26 year-old is entitled to a 6-figure salary? The rampant grade inflation at our colleges and universities where everyone’s apparently an “A” student and where grading on a curve is just for old-fashioned curmudgeons like me is nothing compared to the ego and compensation inflation that’s also going on all around us. Salaries always spike when there’s tons of easy money chasing deals, but today it seems like the finances of too many startups are entirely out of whack with both reality and with their own wherewithal.
We used to believe that the cash and other compensation which you earned were reasonably correlated to the contributions that you made to the business. “Made” in the past tense – not those you were hoping or expected to make in the future. But today, recent graduates and new employees (especially in tech businesses) want to be paid on the come and - in addition to being unbecoming and overreaching – these expectations are choking a lot of young businesses because it would appear that almost no one in management knows how to say “No” anymore. In fact, I’m not sure that any of these young CEOs really want to say “No” (and here’s another change from the past) because the salaries being paid to the people working for them are a pretty good justification for the amount of their own compensation as well. So no one really has the guts or the motivation to slay the Golden Goose until it’s too late.
I’m afraid that, if we don’t take some time to review the situation and maybe re-set some of the benchmarks, we’re going to see a lot more businesses abruptly hitting the wall when the cash runs out before there’s any real traction for the business and before the results start to show. You can shift your strategy and pivot like crazy if you’ve got the funds to stay in the game, but when you run out of cash, they send you to the showers and then straight home with your tail between your legs.
What’s interesting to me is that this problem is pretty much restricted to the new young tech companies rather than the established Silicon Valley technology businesses that have been in the game for many years. In part, this situation is probably because a great deal of what used to consume a significant part of early-stage funds (capital expenditures, connectivity costs, etc.) are really no longer major components of getting a new business off the ground. So there’s more theoretically “free” cash to spend on disproportionate comp packages for the management and key technical employees.
In fact, the big tech guys not only understood the salary and comp problems; they appear to have adopted an entire – basically illegal - plan to deal with it. That hasn’t worked out too well for them at the moment, but you can’t blame them for trying. At least they were a lot smarter than the legal profession which basically blew itself up (and killed a number of major firms) by engaging in an insane annual competition to see which firms could pay the largest starting salaries to their newest associates. Year after year for no good reason they would pay newbies tens of thousands of dollars more than their existing employees and brag about it to boot. I’m sure that the stupidity of this competitive process wasn’t lost on the senior management at Apple, Google, etc. An interesting aside is that one of the only companies not accused of participating in this comp-fixing scheme was Facebook which was also run by the youngest guy on the block.
In any event, and however they came to the realization that some collusion was in their aggregate best interests, we’re all reading these days about the latest class action lawsuits asserting that certain executives at the biggest tech firms on the West Coast got together and agreed not to poach talent from each other by starting bidding wars for engineers and other workers with specialized technical skills. They allegedly had an aggressive and quite overt enforcement policy among the major firms and an ongoing and active involvement from the most senior managers in the whole process. Most recently, the judge rejected a major settlement offer by the leading firms (about $325 million) saying that she thought it wasn’t enough money for the damage done to the hundreds or thousands of employees who got screwed.
I’m not sure how the litigation will turn out for the parties (I know the lawyers will make a bundle), but I’m certain that I can understand some of the underlying motivations (not, of course, the morality or legality) of most of these guys. It’s hard enough to get great talent and almost impossible in the hyper-competitive and completely immoral world of the Valley to hang on to your best people because everyone is basically chasing the same players and most of those players are chasing the next “big bucks” offer. Frankly, I’m surprised that it’s taken this long for this whole story to leak out.
And I would have expected nothing less because company loyalty doesn’t matter much out West and job longevity is pretty much a joke. We may have fewer superstars in Chicago right now (that’s changing as we speak), but, while the culture and the people here are just as competitive, we also value commitment and keeping your promises. Our best employees basically stick around. They’re here and in it for the long haul – not for the easy exits – and not for the next best offer.
But that doesn’t mean that there isn’t a big issue around compensation in Chicago and every other tech-oriented big city these days that’s causing a lot of headaches and heartaches for young entrepreneurs who are trying to build their businesses with limited capital.
I understand that in every market there’s an ongoing competition for talent, but there’s also a lot of talented engineers and others walking around these days wondering exactly what to do with themselves. There are a lot fewer sure things than you’d imagine; not everyone’s got a game-changing idea or a world-beating business; and there’s not all that much appeal (or upside) to becoming employee 98,001 at Apple.
And whether you want to acknowledge it or not, it’s not a free or perfect market for talent anywhere because a great many of us are constrained by other considerations – family demands, education requirements, location and the risks of picking up and moving across the country, etc. – and these concerns also all factor into the choices that we can make.
So I think that right now it’s almost as hard (however talented you may be) to find a great opportunity (and the one that’s right for you) as it is for businesses to find all the talent they need. And I’d suggest that this is a healthy kind of equilibrium that serves us all in the long run and that should encourage all of us to try to keep our personnel costs somewhat in check.
As I imagine Jesse James used to say: it’s always a better idea to rob the train first and then split up the loot. Or as Kanye says: “I got a problem with spending before I get it.
We all self-conscious. I'm just the first to admit it.”
