Everything You Know About Paying Fairly is Wrong | With What Pay Costs' Author James Seechurn

Speaker A: Foreign.

Speaker B: Welcome to the foundation series. Your deep dive into startup compensation with industry leaders from across the startup world. Join me Matt McFarlane, a people operations leader turned compensation specialist, as we uncover the strategies and practices driving success in tech startups around the world. Hear insights from heads of people, founders and experts as we explore how to build robust compensation frameworks that not only fuel growth and retention, but do so in the dynam startup environment that we all know and love. Let's get into it. Welcome to today's episode of the foundation series. Today I'm chatting with James C. The guy who's shaking up how we think about pay and performance. James is the brains behind two incredible books, Nothing Left to Take Away and what Pay Costs, where he flips the scripts on traditional pay models. In today's episode, we dig into the background on how pay got so messed up for people and companies. We cover the fallacies of modern pay for performance models and what you should do instead and where the future of salaries are going in a bleak looking jobs environment. So stick around for one of the most eye opening conversations I've had today. James, welcome to the podcast. I have, uh, been a fan as of. I'm trying to think how long ago it was that I read your book what Paid Costs, which I consumed, uh, in about three days. Um, but, uh, excited to have you on the podcast. Excited to have you here, uh, and talk, uh, about a few concepts there and more broadly. So welcome to the pod.

Speaker A: Yeah, thank you very much. I've been a fan since we started debating about the best Christmas movie so.

Speaker B: Which I fear will never end.

Speaker A: We can't get into that today otherwise we'll just spend the whole time that

Speaker B: might, that might actually be a Joe Rogan length, uh, podcast.

Speaker A: But that's okay.

Speaker B: We'll leave that for a future episode, mate. I'm going to dive right in. Um, like I said, I read your book. I really enjoyed it. I think the things that appealed to me, um, as, as someone who tends to spend a lot of time working with startups is that they're often in this kind of like greenfields environment. It's part of the reason I love working with them actually is that you're kind of coming in. Yes, there are some pay norms in terms of practices and things like that, but the real appeal to me is that you kind of have this opportunity to start from the ground up and really rethink a lot of the principles and practices and ways that you want pay to work for you as a company. Um, I'd Love to put the question to you, and this might be a big one, but, you know, we've got plenty of time to talk about it. What are some of the things that you would bring to that kind of an environment where you're working with an organization to really think about, hey, how do we want pay to be at this sort of formative stage of your business and where do you go, where do you take things with, uh, a company like that when you're at this sort of embryonic environment?

Speaker A: Yeah, it's interesting, isn't it, because that really early stage, what people say they like about it and where all those good ideas come from don't tend to be reminiscent of bigger companies. And the best in class kind of things we talk about. So what people get us chaos. It's chaos. We just do whatever and we pay people. We don't know how to pay people. We don't, you know, we just, we pay for what they ask for. But people love it, right? So clearly it's not a problem for the lack of structure. Um, what I find is like, you know, I think that you have to embrace a certain amount of chaos in that, in that startup culture because that's what makes it fun. It's that lack of predictability and the freedom to try things, which is what people enjoy the most about their work. I think where the problems come in tend to be a little bit after that when you start bringing on people with more medium to big size company experience and they bring with them preconceptions, rightly or wrongly, about how to handle pay. And it typically comes in the form of, uh, pay structures, pay salary structures, job architecture, uh, bonus systems, uh, more streamlined equity awards, that kind of thing. And I do think there's something to be said for all that, but it also, um, is a system of control. Um, and as soon as you start introducing more control, you start diminishing the space where that chaos can come about. And so every time you say this is the way we do a certain thing, you remove some of that opportunity to experiment and try new things. So I'm not sure how good an answer is to your question, but that's how I kind of think about it. I don't like coming to try and extinguish what makes them a fun place to be.

Speaker B: Yeah, well, I mean, look, I think it's at the very least a great lead into, uh, something that I want to explore. So let's talk about this kind of concept of, you know, good chaos and bad control and things like that. How does that tend to show up, um, in a startup or a scaling organization, do you think?

Speaker A: Well, I think so. The first thing it is a healthy tension. So this is a tension I really like to explore is the tension between chaos and control. And you do need both. And as humans we look for both as well. When we appreciate things, we appreciate the balance of those two things. Art never looks great if it's too perfect. Equally, it doesn't look great if it's done by a 1 year old because it's just too much. Guess so there is a balance, uh, that appeals to us as humans in terms of finding that. So I think particularly in a startup, you've got a strong intersection of that balance. So you've got investors undoubtedly that want a return on their investment. There can be no chaos about that, or they don't want any chaos about that. If you could guarantee them a 20x return on their investment, they'd just take the money. They wouldn't even waste their time with the company. But the point is they need to expose themselves to a certain amount of chaos in order to return the investment with their money.

Speaker B: Love to run. High risk, high reward is the name of the game.

Speaker A: Exactly. Yeah, that's what you're looking for. But at the same, that's why you appoint a CEO. Point of CEO and your job is to return that investment that I'm asking for. I'm choosing you as a CEO because you're the CEO that can best deliver on that 20x percent, 50x percent, whatever it is you're investing in a startup. But at the same time, we all know that innovation comes from freedom and creativity. So we look around at all the innovative, uh, moments in kind of corporate history and, and most of the fun stuff really does happen from the ground up. It comes from a curious engineer. Google was always a great example, uh, of this. When they had the 20% time, we got Gmail from, uh, an engineer that just kind of got bored and fed up with his inbox M so used the search algorithm and applied it to an inbox and now everyone in the world is Gmail. Um, you had the post it note invented by um, Art Fry and Spencer Silver at 3M, which is actually what inspired Google's approach to free time because it was a model that encouraged people to play around with things and try things and figure out what happens. So that's a tension that has to be, I think, embraced. You can't pretend it doesn't exist. At some point you've got to deliver on results but also if you focus too much on quantifying and measuring and goaling, then you start to make people care about all those things and not to care about the innovative aspect of it. So as a startup, I think a CEO's job in particular is to try and find a balance of that in potential, to embrace it, recognize, and also celebrate it. Right. If you've got a conflict between those two forces, you can't hide away from it. You've got to say, well, look, we've got to figure it out. We've got to innovate. We've also got to deliver to our investors. Come on, let's figure it out together. I think that's, that's where really good startup CEOs kind of find that balance.

Speaker B: Yeah, I would agree. There's definitely. It is a balance. And I think if I, if I think about how this, if I, if I kind of bring this topic of balance down to, to, you know, pay practices. I know certainly from my perspective, the way I see this show up and again, the things that appeal to me about a startup environment is that often you're dealing with circumstances that you haven't had to deal with before. I'm, I'm, uh, you know, a recent example for me is somebody is relocating from one country to another. How do we think about what we want to pay them? And there's a bunch of different approaches. You could just go, we're going to benchmark them using the same, you know, target percentile in the primary country as the new country. Or, um, you know, another approach I've taken in other companies has been we're just going to do a straight conversion of their salary because it's above what the range is in the new country. And we're going to let that, you know, benchmark catch up. There's a whole different bunch of approaches. And I think that from my perspective is one of the, like, the good sides of the chaos is that you can kind of take this approach of, you know, what are our first principles here, what is our culture, what is the kind of company that we want to create? And let's come up with, uh, a set of, um, you know, processes or values that are going to govern how these sorts of decisions are made. But then I also see this hugely changing environment when it comes to, in particular, um, uh, pay transparency and how a lot of, uh, countries are imposing on, on organizations to, uh, bring pay from out of this kind of back office, you know, infrastructure into the light and, and be upfront with candidates and employees. On how it's determined. And that for me feels like it's forcing a trend towards, um, control. For the benefit of being able to be more articulate around why pay is, you know, what it is for a lot of people and many other things. From, uh, a total rewards perspective, how do you sort of see it more in that lens, in that like pure pay perspective from a chaos versus control?

Speaker A: Uh, that's a really interesting topic, I think. Um, so let's think about why pay transparency legislation came about. It came about because companies failed people. They had an opportunity to pay people fairly and they didn't. And we've got the data to prove it. And then so governments around the world said, okay, how can we help people get more fairly paid, both from an economic and a social perspective here? Because it's economically advantageous for people to be paid fairly because otherwise you're under incentivizing large groups of the workforce. And the EEC did a wonderful study in this and they quantified it and I can't remember what it was like 20 billion a year or 50 billion a year or something like that is in the billions. And so if we.

Speaker B: Is what people are underpaid by.

Speaker A: No, no, if we, that is the economic opportunity, if we just incentivize this missing portion of the workforce that right now has no interest in working because they don't believe they're going to be paid for them. So the under incentivization that is by paying people unfairly is based on the huge economic gap here that companies can take advantage of. Massive chunk of the force. If you just pay them fairly, then you're going to get much more output, much more productivity out of this group because right now they don't care because they don't believe they're being paid fairly. And pay is this, you know, that wonderful term that Hertzberg came up with. It is a hiding factor. You have to get it right. Um, if people don't believe they're paid fairly, then that's enough reason for them to leave, but that's the place to get a rent. So that's where pay transparency came from. It came from basically saying, well, you had your chance, corporations and you didn't take it. So now we're telling you how you're going to handle this problem. We need people to be paid fairly. And it's kind of the same around pay structures. So there's a parallel here between pay structures, pay scales, um, point factor, all that kind of stuff. And the same thing. Companies again weren't paying people fairly. So unions came in and imposed a rigid structure. So that's where job architecture came from. Because what happened was companies would take someone doing a job and say, but also wanting to do X, y, Z as well, we're not going to pay you anymore. So unions came along and said, okay, we need to rigidly define this job so that you don't do beyond your job. So we've, in short. And that's where really, really tight, granular job architecture came from. It came from a lack of trust. It came from a lack of trust that companies weren't trying to exploit people and get them to do more work than they're supposed to. So in many ways the very salary structures and job architectures, all that stuff came about with the same forces as pay transparency has come about now. So in really broad terms, I think there's an opportunity for companies to regain that trust. And the more they regain the tr, the less they need to worry about the mechanics of making pay transparency work. And I'll stop there for now. That's kind of like my sort of ideological start point for how we think about pay transparency. But then there's also mechanical solutions to it as well that we could probably need to get into.

Speaker B: Yeah, I'm going to start by saying I'm putting a pin in the union conversation because I really want to talk about that later. Um, do you think I want to. I want to understand the genesis of this, like companies not paying people correctly, um, problem and I wonder if, and I'm curious for your thoughts here, obviously, um, is do you think companies haven't paid people fairly because they can't see the benefit of it? And then what I mean by that is like, um, are they not great at measuring the difference between when someone's well paid or, you know, fairly paid versus when they've been kind of taken advantage of in their pay and so they've just gone, well, it makes sense to me that, you know, why wouldn't I collect the obvious upside, which is the difference between their underpaid salary and their fan paid salary and just see that as a benefit versus actually pay them fairly and try to measure whether or not the benefit of that to my bottom line is greater and kind of go from there. What do you think has been the reason for that?

Speaker A: Yeah, I mean there's a wonderful, I don't forget what it is, but there's a wonderful rule which is, um, always assume ignorance first and malice later. Something, um, and I think it's a

Speaker B: razor or something Isn't it?

Speaker A: Yeah, it's kind of an Occam's Razor thing as well. Yeah, it's probably people just not thinking about it. That's kind of what it is. Inherent bias is a very, very powerful force everywhere in the world. It reshapes elections, it changes work, it makes companies succeed or fail. Um, there's a great book on inherent bias called the Hidden Brain, um, which does a wonderful job of articulating some of that. A lot of it is completely subconscious. A lot of the reasons that people weren't paid fairly has nothing to do with someone setting out their day, decide that they want to screw somebody over. It's just because they didn't acknowledge that the biases in their mind, in the back of the mind, hidden my biases. But by definition they're not aware of were meaning that they give more pay increases to that person and not this person or they promote that person or this person. So there's no, uh, it's really, I think that's the real driving force. It's an ignorance problem. It's people weren't aware of this problem being created. And if you ask someone, do you think you're fair? Yeah, sure. Yeah, of course. Of course I'm fair. Yeah. And you probably think you are and you probably could be in many parts and many assets, many facets of your life. But you would obviously by definition you don't know about what you don't know. You don't know that you're making decisions with uh, your subconscious mind that negatively, um, impact a particular demographic.

Speaker B: Yeah, it's probably like that. Uh, what was the study where they asked people if they think they're an above average driver and 90% of people said they were. And it's our ability to judge our uh, competency or capability here is, is severely hampered.

Speaker A: Um, and the other best. But by the way, is that. So that's one. And the ignorance is one thing you don't know. But also we haven't sold people on the economic value. So if you say everyone says they're struggling to hire people. Right. We can't get the talent. We can't get the talent. We can't get the talent. And in the same breath those companies say, but we're going to have a return to the office policy and we're going to have feedback. You just cut yourself off from a huge chunk of that talent that you supposedly can't find and you're struggling to find. Um, so the minute you uh, so return to office is a whole thing.

Speaker B: Right.

Speaker A: But the minute you do that, you say, okay, well, we're only going to hire people in the vicinity of this office by definition. Right? You're not saying that, but you're implying it. That means that if you're in a metro area, it's going to be predominantly white men because, uh, they occupy the wealthiest portion, uh, um, of the workforce. So immediately you're now incentivizing one specific demographic by saying, we're going to come back to the office. So what I think when I say we haven't sold it, what we should be saying is that if you do want access to the best of the best, then you can't afford to be biased in how you're doing things then. Which means you can't afford not to be transparent around pay because currently half of the people in the world are worried about this. Well, at least the women of the world know that they are probably statistically going to be paid less than their male counterparts. So if you don't decide to do something about that, you're starting off on the back foot with any pay talent conversations. Uh, so the first part was, well, we're not aware of things we don't know. But the second part is no one's really made an effort to sell a reason to invest in this stuff. And that's kind of what I try and talk about with my clients. Look, there's an economic benefit to this, and it's very difficult to measure in the short term, microscopically. But broadly speaking, it's much more easy to demonstrate in a few years when you've got a more diverse group of people. Um, and again, if you want to innovation, which is what I'm all about, then you've got to have a diversity of ideas. And if you hire everyone that looks and sounds the same from the same background, you're not going to get that diversity of ideas, which is what's required to really drive companies forward.

Speaker B: Okay, so I think for me, if I hear what you're saying is it's like there's a job here, and you're saying this is a role you play in the organizations that you work with as well, where you're actually, you're trying to convince an organization that, you know, and the example that you gave was return to office policies, uh, are, uh, quite limiting, but it's going to be difficult to measure that in the short term. You kind of have to have faith, like, what are some of the arguments that you use and, or what tends to work well in your experience and Helping companies see the light a little bit in this topic.

Speaker A: Yeah, I mean, it's not easy. And again, this comes back to the tension. Right? You're trying to. If you're trying to. Let's say we're talking to a chro or a chief people officer about this. Their job is to do what their CEO, uh, wants to do to some degree. And we always talk about this idea of, uh, having a seat at the table, executive table. And the HR or the people version of the executive office tends to be the least valued, the least paid, the least respected in some ways. Not always, of course, but a lot of the time. So what you're trying to do is trying to say, well, we need to make a case for these things. Um, and there's a wonderful quote by William Bruce Cameron, which I roll out all the time. So apologies if you've already heard this one, but it's that not everything that counts can be counted, and not everything that, um, can be. Let me start again with that one. Not everything that counts can be counted, and not everything that can be counted counts. So what we mean by that is that there's some very easy numbers that you can look at and say, revenue, okay, it's going up, great, we're winning. It's like all these kinds of things. So the easiest numbers tend not to tell the whole story. So part of it is to say to a CEO is like, well, yeah, if we only look at the next year or so, we're fine. But no company that's only ever thought about the next year has survived. We need to think about the long term. And if we're thinking about the long term, no company survives without innovation. And there's loads of examples of companies that thought they were doing wonderfully until they weren't. So I always give up, um, research in motion, the BlackBerry, everyone thought they're, uh, killing it. The world had blackberries. How could they possibly. If you were there when you had a BlackBerry and I had a BlackBerry, the idea that someone would come along with a better device and that research, emotion would cease to exist in the next two years, pretty much, it would be completely absurd. And this exactly what happened. Because they ceased to innovate, even though their engineers came to the executive team with a warning saying, iPhone's been released. We need to change everything about how we think about mobile phone devices. They ignored it because they were hitting their numbers. So it's classical loss aversion. If you are a Chro or a chief people officer, you need to figure out how to, to put fear into the mind of that CEO. What could they lose if they don't do some of this stuff? So we're talking about pay transparency and what you're going to lose is a diversity of ideas. What you're going to do is surround yourself by people that think and sound and agree with each other. And history shows us the people, the companies that fill themselves with those kinds of people fail ultimately.

Speaker B: I just watched that BlackBerry movie actually and um, I've often um, thought about it, but more from the um, the perspective of Nokia, which is another company that were obviously disrupted massively by the iPhone. Um, but I think that what that movie did really well. Um, and it was a dramatization but it, you know, it was, was capture the moment where I think, you know, Steve Jobs did his iPhone presentation and their like faces just dropping and just being like, oh shit. Like this is so fundamentally, you know, a game changer for our product and what we do and things like that. Um, yeah, I thought it was, I definitely recommend. It was a great movie. Definitely go and see it. Um, I feel like we need to, maybe we need to. Yeah, it was, it was um, I think we need to clip that scene maybe for when we're having these conversations with our CEOs. Right. Not to mention, you know, there's these whole things around, you know, innovators dilemma and whatever else right around. Um, you know, and a really recent example I feel in this sense has been Google and OpenAI. I mean OpenAI took software or technology that was fundamentally, from what I understand, developed, developed by Google, um, and released it before Google did because Google were, you know, well, potentially, I've obviously not, I'm not working in Google, but potentially worried about cannibalizing their search business. And now they're playing catch up and they probably are doing that quite successfully. But they lost a lot of ground at the start because OpenAI came out and said, boom, we've got this thing. And it was just like I think I read something actually recently where when people think about AI, 70 or 80% of them still think of OpenAI, they don't think of any other, any other provider because they had this first mover advantage. So I'm sure there's, there's you know, value in the building, millions there that has been lost by Google because they fundamentally didn't want to bring something to market that may have, um, shelved or you know, impacted an existing product of theirs. And these are the kinds of things that, you know, that you're talking about

Speaker A: yeah, this, I mean this is exactly a fear. Google search business is worth, you know, whatever. I don't know how much it's worth, but this is billions. Yeah, yeah, like the fear of losing that is what slowed them down. Which is ironic because Google historically has been great at self destruction. But, and they've done a wonderful job of preserving that ethos even as they got bigger. I would say recently they've lost that a bit. When I saw them adopting pay for performance in the news, I immediately thought, okay, that's a bit of a warning sign right there because they never did that before. But um, I think that's a really good sign and you can quantify that loss because they didn't do what they could have done. It probably cost them billions already. That's done, that's happened. Another really good example is Kodak's invention of the digital camera. Well, so Steve Sasson invented the digital camera at Kodak back in the 70s, I think late 70s.

Speaker B: They literally had the golden goose.

Speaker A: Literally had it and he invented it and he recounted this himself. They basically got told that's cute. But our biggest revenue market is selling film. It's selling film to put in their cameras. If we make a digital camera they're going to stop buying our film. And that represents like 70, 80% of our revenue model at this point. So they shelved it even though they had the patent for the world's first digital camera. Meanwhile Japanese companies like Fujifilm and everyone and Nikon, they went and did it. And then eventually uh, Kodak declared uh, bankruptcy a couple of decades later. It took a while but again it's that fear. They said we've got something, we want to protect it. So this is this tension again as executive, and this is where executive pay and executive incentives is a bit questionable. Your job is to protect that revenue because that's what shareholders want to see. That want to see the eps, the revenue streams. Da da da da da da. But in reality even institutional shareholders are not looking for one year, two year returns. They're looking for a lifetime of wealth creation, um, for their investors. So we shouldn't care that much. What we should care is is that stock going to be worth something by the time I retire. But the executives are constantly appointed with a somewhat short term um, uh, duty to return. So the idea of taking away from that revenue, cannibalizing that revenue, like Google cannibalizing that ad revenue in exchange for investing in a technology which is there to unproven is a risky thing for investors right now. In the way that people think about things.

Speaker B: Yeah, it's a real. And I don't expect you to have a solution for this, but uh, I think, I wonder if it's like a fundamental design flaw with the sort of VC backed tech environment, which is that, you know, there's an expectation that within 10 years you're a billion dollar company. Uh, you, you get sold or you ipo and the people, you know, the majority of the people in that company, unless you're an Airbnb or whatever, but including the founder, are likely to cash out and go on and do the next thing. And so it kind of creates this short, you know, in 10 years is a short term, It's a relatively short term. It creates this kind of short term mindset of like, how can we just grow at all costs and potentially at odds with what could otherwise become this generational company that is actually around for dec rather than something that just gets to this finish line that is that, you know, is 10 years away or potentially shorter. I mean we're seeing, you know, we're seeing lovable, we're seeing all these other companies that are doing like crazy stupid numbers. You know, I think they just raised their Series B, which was, you know, has put them at a $1.2 billion company or something, something like that. And they're, they're like 18 months old. So like the, the Runway for these things is, is only shortening. I can guarantee you that. The conversations in boardrooms are probably, uh, you know, uh, looking at those sorts of companies and saying, why aren't we seeing those similar sorts of values in a, in a shorter time frame? So you, uh, know, the pressure just seems to be piling on from that perspective. And, and yet where I feel like you and I and, and other sort of, you know, progressive HR professionals are trying to have these conversations with leaders to say, you know, yeah, but is it the right thing to do and what are we sacrificing in the longer term when potentially they're not even looking to the long Bhutan.

Speaker A: Yeah, well, yeah, and we have to be realistic about these kinds of things. Right? So the odds of going public for a VC backed company are um, lower than 1 in 10, I believe, depending on what's close to 1 in 20. They're very, very low the chance of going public. So that valuation is an external investor saying, we want to buy shares and we're going to assume it's going to be worth this much and we're going to use that to do our calculations and things. There's no guarantee that that company is worth that number. And more often than not it is. NICA vc, they play like dice, right? They know not everything's going to work out. So as a recipient of that investment you need to know that your VC investor doesn't necessarily think you're going to work out. It's just part of a portfolio gambles that they're taking. Um, but the other problem with this is Lewis Kelso talked about this in the 70s, um, and he's the reason that America has ESOP employee share ownership, uh, models which is about uh, employees owning the companies that they help create, um, through retirement mechanisms and things. But his point was the capitalism isn't the problem here. The problem is all the people you're asking to generate that wealth are ah, not the people that are then the recipients of that wealth. That wealth that they generate is then in the hands of a select few. So in the public market you have institutional shareholders which uh, generally own um, everything on behalf of people but ultimately they make decisions. And in the VC back world you have one or two major investors. The people who are generating that value, yeah, they get stock but it's not real ownership. And they know, everyone knows, particularly in the VC back world. Focus on that for a minute. They know that it's not necessarily worth anything. So not only you're not giving them anything of any real value, but you're also not giving them true ownership because the true owners are sitting in boardrooms somewhere, um, making decisions about whether to stay in or stay out. So I would love to, I've thought about this a few times. I'd love to explore a model that allows uh, more of an exit route that takes the value or the shares that external investors have and has a vehicle for giving it back to the employees. Because when you do have employees that are owners of the company, actual owners like collectively own the majority of the company, then they stop thinking about exit events. They start thinking okay, how can we create a life where we keep doing the things that we enjoy, um, without the risk of an exit event or a buyout or someone pulling the rug out from underneath us. So I wonder if there is some middle ground between VC ownership and employee ownership that takes the wonder and the beauty of loads of money coming in one day and allowing you to invest in things, but also uh, an avenue to uh, getting that wealth creation back in the hands of the employees that create them.

Speaker B: I think it definitely happens. I remember reading and I believe it was uh, a private equity company that came into or I want to, I don't remember the details well, but I feel, I feel like it was a shed building company or something like that. It was a case study that stands out in my mind where they did something similar, where they created um, this, you know, pretty substantial um, pool of ownership for employees. They gave that to them and they actually, they actually lived and acted in a way that gave people a sense that they had a say. So they had forums where people could, you know, raise issues with, you know, or things that were fundamentally from a, ah, bottoms up perspective, obstacles to our goals as a company. Um, but it was, it was a much more concentrative approach. And I think when that company eventually then sold, you know, everyone benefited. There were people that had many times their salary in, in um, in in exit value for themselves. And you know, that for me is, that's an ideal. That's an example of what I think ESOP should be for, for people. I think a lot of esop, and this is just my opinion at the moment, is, is like it feels really tokenistic. It feels like there's something that we have to do and, and, and it's an expensive thing for companies to do as well. Like it's, it's a pain to manage, it's expensive to set up. Um, and then I'm. Where I see a lot of them fall over is that it really is just that thing that they kind of, there's a number on their letter of offer and then it's never heard about again. And so it just, it doesn't really have any impact for people. And I think, actually I saw a post from you this morning talking about how, you know, the mental discount people have on something like that is that it counts for kind of nothing. They probably don't understand it. They don't really have a way to influence it. They don't probably, they actually probably don't know what it's worth. They don't know how to grow the value of it. They're not kept up to date as the value of it changes. Like all of these things fundamentally just like remove it as any form of incentive. And so I often, you know, uh, in fact I think I've even discouraged companies from setting up an ESOP unless they really genuinely want to go down this path of like working with their employees and investing the time in communicating effectively, like educating them on it, helping them understand how it works and how it impacts them. Um, because it's otherwise just a real headache and you kind of just go through the motions for something that doesn't do anything.

Speaker A: Yeah, exactly. And that's it. If it's done in concert with your strategy, with your employee value proposition, then it makes sense if it's done in the right ways. And by the way, I did read something about private equity doing what you're describing. I wonder if you've read the same thing. But this doesn't never happen with VCs. But with private equity, there are some avenues out to get shares back with employees. Um, but I think if you're. To me, it comes back to like, the most effective workforces are participative workforces. So that means that, um, it's a workforce that decides how it gets things done. So you don't have a strategy by an exec that's handed down to everyone. You, the people closest to the work, are entrusted to figure out how to get it done. And normally those are the people that are best at getting the work done because they've done it. They know the customers and know the industry. And if you do that and then also say we're also going to make you owners of the company, at the same time we're going to go out of our way to make that happen. And we're going to use ESOPs, tax beneficial retirement funds, all that kind of stuff. Use legislation, employee share purchase programs I think are great and I'd love to see that expansions in terms of tax discounts and that kind of thing. If you do that and at the same time you're saying we want you to act and think like owners, then it works, then the message is clear. Like the message is, we want to build something we can own together. And we're not about exit events, we're not about squeezing as much out of you because we are you. We're all just the same people. We're just still trying to get through this together. Then it works. But like you say, if it's tokenistic, if it's poorly explained, and at the same time, people are getting burnt out, they're getting wrung dry, their ideas are getting ignored, management's coming in, disbanding their initiative and replacing with something they want to do. They leave and three months later someone comes in and gives them something. Then it's like, I mean, I don't really care anymore. Like, whatever happens, I'm not going to be in control here. So why m am I bothering? I'll just try and take the cash. We'll get the cash from somewhere else. Uh, I think that's the thing for Me, it all comes back to the tightness of the employee value proposition.

Speaker B: Yeah. And I think what you're saying there is, it sort of transactionalizes that relationship, right. Is that they do go, well, you know, the company or the Roy is going to pay me $10,000 more. So off I go.

Speaker A: Right.

Speaker B: If you reduce, if you boil that relationship down to the dollars that they get, you know, in their monthly paycheck, then unfortunately, you know, don't be surprised when they, when they react to that because someone up the road is paying more, so.

Speaker A: Exactly, exactly.

Speaker B: All right. We're sort of, we're diving down this path towards pay for performance, which I think, you know, is a huge topic. I know again, reading your book, um, it's something you have opinions on. Let's talk about this. The most common way I see this concept show up in organizations, which is the merit pay increase, the sort of below meat succeeds, you get a pay increase, uh, uh, as a result of that. Tell me a bit about your thoughts around this whole concept, why it works, why it doesn't. Um, and then maybe we can talk about what companies can do instead.

Speaker A: Well, I'm going to take a small step back so we can take a massive leap forward if that's okay just for a second. So when we talk about performance, I want to clarify what kind of performance we're talking about because there is performance that you can pay for. Like if you, if it's transactional, basic volume based, basically sales, if there's a simple sales motion, then paying someone to do more of a thing results in that person doing more of that thing. So I don't deny that you can modify behavior with money. If I tell you to. If I'm saving you $10 to stand up, you're probably going to stand up and take the $10. I can demonstrably modify people's behavior with money if I want to. So when I talk about pay for performance, meaning about the merit cycles, I'm predominantly thinking about companies that are made up of knowledge workers. So that's. Knowledge workers is this wonderful term coined by Peter drucker back in 1959 if I'm not mistaken. And his point was that as we evolve, as business evolves, more and more of the mundanity is going to be taken care of by machines. Uh, and people are going to be expected to do more of the problem solving, the abstract, the collaboration to get ahead in business. And we're seeing that, we've been seeing that trend for a long time and nowadays, particularly in uh, Western markets, the majority of the workforce are knowledge workers, as Peter Drucker would have classified them. So that means they're not selling, they're not salespeople, they're not just trying to get more of the same. They're not, um, factory workers on a machine line trying to pump out more nuts and bolts every hour. They're trying to figure things out. They're trying to add value through innovation. So that's the performance, that's the pay for performance break that I think I see. So your question was around the merit cycle. So the merit cycle again, where did this all come from? Initially we had salary bands and to get through those salary bands you basically got there by tenure. This came from factory workers and government systems and things like that in the us, predominantly in the uk. Um, and to get ahead you would have tenure or you would get a qualification. And this is all kind of very formal, like very rigid. Right. There wasn't really any room. Then around about 30, 40 years ago, we had this idea of broad bands where it's more discretionary and it's like, well, we got to flex and we've got to do things. So this idea of discretion within a pay band is actually relatively recent in the world of work. So the merit cycle is this idea that your good performers should earn, um, more than your weak performers, which is fine. I agree with that concept. The problem is you don't know who they are. It's very difficult to define who is good and who is bad. And again, if you've got sales numbers, it's pretty clear you're selling more than that person is pretty obvious. But for most people, how do you define the person that's best? Collaborating, figuring things out, redefining processes, innovating a product that might make us into the world's biggest company in 10 years once we get the licenses and everything. How do you define the person that's facilitating the work group that generated the idea that's going to disrupt the industry? You can't quantify these things in advance. You can't set a goal for doing that because a lot of the time until it's happened, you don't know that it could have happened. So again, this digital camera, no one could have set a goal for Steve Sassen to invent the digital camera because we didn't know it existed. So we figured out afterwards that it was worth something. But it wasn't until 30 years later, though Kodak admitted that we probably should have recognized that. So the point is that if it's in the abstract and the unpredictable, it's very difficult to objectively measure and reward on performance and then attach it to pay. And again, numbers bear out. The levels of confidence in performance management systems are astronomically low. There's a horrifying statistic where about one in five S&P, I think S&P 500 or maybe top 100 leaders believe that performance management works. And then these are the people responsible for rolling it out and getting it. And these are the people closest to it. And they don't even believe it works. So clearly it doesn't work. Um, so that's kind of the starting point. That's why I worked on what pay costs. I was trying to show people all this stuff that we rely on. It doesn't really work and no one seems to agree it does work. So why are we still doing this stuff?

Speaker B: Yeah, yeah, I hear. How would you respond then to like. Because I think a lot of what I see, and I'm sure you do too, is this sort of the way we try to wrap up performance then is in um, how we see people live the things and act the ways that we think will result in the digital cameras. So you know, I see this show app as, uh, behavioral competencies, um, you know, values based, uh, assessments, things like that. I see there as almost being two thresholds. Right. One is the if you do these things and you act in these ways that are collaborative and demonstrate these sorts of behaviors, then directionally we are likely to be a more innovative company and we are likely to have these sorts of success. Then there's the actual, James, you've just built a digital camera. Um, and you know, this is an accomplishment that's unprecedented and it's kind of in my mind impossible to have pre quantified or you know, presumed was going to happen and is therefore much more immensurable. How do you think about these sorts of the concepts? Maybe the first one we could start with is these behavioral competencies and how companies will tend to attach a merit cycle to those.

Speaker A: Yeah, let's start with that one then. So first of all, like, so, you know, so there's a psychologist called, um, I think it's Ari Koglansky, if I remember his name correctly, and he coined this term cognitive closure. True. So this is the idea that people naturally seek quantifiable, demonstrable solutions over abstract and vague ones, even if those solutions don't make any sense. So we have this like competency frameworks are a really good example of this. Humans are naturally very inquisitive problem solving people. We are very ambitious, we are very hardworking, and the examples are always gave. Uh, even the laziest person in your office, they probably do something at home, they're probably training for a marathon or they're reading in books, or they're learning a new language or doing something. No one's paying anyone to do any of this stuff. Humans are just very inquisitive, the same as all of our hominoid cousins or the great apes. We are very naturally inquisitive. We don't need to be told to be inquisitive. We don't need to be told to collaborate. We seek it out. We do it all the time when the barriers aren't there for it to happen. So this idea of having competency frameworks, again, you're not solving anything. Like, to me, it's solving a problem with a problem. The problem was that we created conditions that meant people didn't want to do that in the first place. So my question is, what kind of company have you created where people don't want to collaborate and don't want to figure things out and don't want to solve things? Well, it's probably a company where you're giving people really mundane jobs and told them exactly what they need to do and closely micromanage them, taking away all the things, all the ingredients, uh, that create a recipe for, for really clever, smart, capable people. So to me, I don't really like competency frameworks because, again, it infantilizes people. Like, if you're in school, right, Maybe if you're a kid, then you can't stay focused on anything. We're dealing with adults. All these adults are very, very capable of figuring things out. And if they're not interested, then we've probably done something wrong.

Speaker B: Yeah, okay. Some groundbreaking stuff.

Speaker A: Yeah.

Speaker B: There's going to be a lot of

Speaker A: people who are like, holy shit. Uh, to me, it comes back like, there's this idea that people are lazy, and I just don't see any evidence for them. I see companies, but I see people have been made lazy, and that's the difference. They're not instinctively lazy. They're people that have been made lazy. But there's no point in having the energy to do anything else.

Speaker B: Uh, I have a million different questions and paths I want to go down. So, I mean, you know, the first one for me that's, that's sticking out of my mind is, um, I feel like, because people, and I've been this person before, come to companies with A lot of baggage. Potentially that baggage pre infantilizes them. But you know, when they're in this, this new company that maybe doesn't have the same control structures and prevention of curiosity and innovation and those sorts of things. And so, you know, potentially in those sorts of circumstances, I could see, uh, how a behavioral competency framework could be something that says, hey, we really do want to see you go and do these things. Um, because maybe previously they, they were so suppressed and disempowered to do them that this is a way to take them out of that shell. Uh, I'm just sort of free thinking here. And then, um, yeah, I, I mean, oh, I'll, I'll invite a commentary there first and then we can move on.

Speaker A: Well, that's an interesting point to me. What you need there. So I've been in this position as well. So I started my career in accounting and that is a very, very rigid structure. Right. So it is skills based pay. You get more pay, the more qualifications you get. Is an hourly based system recording a time down to six minutes or 10 minutes, something like that. And it is a structure that does not want anyone to break free of that. And I didn't like that at all. So I've been in that kind of system and uh, I've worked in other companies and I've uh, worked in places where they're very tight on weekly goals, monthly goals, goals, goals, goals, goals, goals. And then I went to a company that didn't have that kind of structure and it took me a while to adjust exactly like you're saying. I've been preconditioned to think and act in a certain, uh, way because we are very coachable as a species. We respond and we act and we adapt. But then you then, to quote competencies. Yeah, you're right, there are competencies that we need to change. Well, we need to be more trusting, we need to be more freeing. We need to worry less about rigorous, uh, uh, frameworks and governance and more about just um, using the space and coming up with ideas. Now the question is how do you do that? And to me that's the role of the manager. That's what a manager is there to do, is to inspire that trust that we want people to. We want people to feel safe. And again, uh, all the studies support this. When people do their best work is when they feel trusted, when they feel a sense of ownership and pride and autonomy in their work. And Gallup has found this many, many times in their surveys. There's a great booklet, uh, I'm, um, reading right now called the Progress Principle by Theresa Amabile. Whenever you ask people why people do their work and why they do this stuff, it's always these things. Trust, autonomy, purpose, all this kind of stuff. It's never because I might get more money or. It's never because I had a competency framework laid out to me at the beginning of the year and I've been tracking my performance against those goals. It's never that stuff. No one ever says that. So again, the competency framework is an attempt to commoditize something that as humans we naturally do, we try and find, we try and try and hone the skills in people they want them to have. So you're right, I think it's with the right intent. When you do competency frameworks, there's never anything in there that says, be a nasty, mean colleague. We're not trying to make people into bad people, we're trying to get them to get the best out of people. But I think again, it's this kind of cognitive closure. We think we've got a framework, we've fixed that thing. So no, in actual fact, you just introduce another system of control. And as soon as you introduce systems, you introduce opportunities to gamify, uh, and you reasons for people to contort their behavior. Um, and I'll stop there for a second as well because then we kind of get into things like self perception theory and self determination theory, which explains why we do them.

Speaker B: Yeah. And so. Well, I guess for me it's like, I'm sure a lot of people listening to this would be like, it feels like there's a lot of freedom in repealing uh, an approach like this. I mean, you said yourself, and there's a lot of research, uh, and studies to support this, is that a lot of people have very low faith and confidence in the performance systems and practices that they have in place now. And it sounds like what you're advocating for is more, um, those sorts of things being true at a cultural level rather than at a, you know, individual behavioral competency level. And it's like, well, if you want innovation, how can you ensure that, you know, from the CEO down, where we're creating the space and empowerment and things like that for people, you know, for people to be innovative. The question then that uh, I guess naturally comes to mind for me is everyone and startups are as guilty of this, if not more so than um, you know, than other companies. If you're sitting next to somebody doing the same job and you know, that you're doing a better job job than them. Um, or there is just a higher performer. How do we start to think about, you know, and you said this before, people that are better at their job should be, you know, higher performers. Should, should be, should, should be paid more. How, how do you think about that concept and, and how that shows up in a pay practice if it's not through a, uh, merit style process?

Speaker A: Well, first of all, the instinct of someone that's doing better than someone else should not be, how can I get more money out of this? It should be, how can I help that person be, be more like me and get the best out of them? And that's where you see great leaders show up. Their instinct is not I should get paid more because I'm brilliant. It's how can I pass on this information so we can all collectively win? So again, if we see us winning and losing as a collective concept, as a group of people, then it changes how you perceive those moments of success and failure. If you're doing great and everyone else is doing badly, that's not a success. That means you've just gone surging ahead while you've left everyone behind you and you're not going to succeed together for that. So that's an instinct that has been honed and trained into people. And uh, the likes of Jack Walsh have thankfully a lot to answer for, I think, for driving this idea of individualization in an environment that should never have been celebrating individualization. So that's one thing. It's a changing in that mindset. It's not about what can I get out of this, it's how can I use my abilities. And people love it. People feel good when they can pass on information. We're all natural teachers. Who feels good to help someone else be better at something and learn something. It doesn't have to be massive. It can do one small win in a day and it can leave you ending the day feeling positive about what you've done in the day. So that's one thing there. But you asked, how do you reward people? And I do agree that people that are doing well need to be rewarded. And the answer is through career, through their opportunities, through the responsibilities that they take on. So no, it's not like, oh, here, have 10 grand, they'll go, well, okay, that's cool. But now what? It's about giving them dismissed, isn't it? Yeah, yeah, it's about giving them more challenges. So that's where meaningful career, um, pathing comes in. Not as a Career ladder, we're going to put you through these every two to three years because then it becomes meaningless. It's like, okay, you are clearly capable of more than you're doing here and you're a natural leader. So we're going to try and find a leadership role for you. Or the next time a leadership role comes up or there's a leadership role in different part of the organization, we're going to move you over into that so you can hone those skills. Even those, though it's a different intellectual skill to what you've been doing previously to allow someone else to be doing what you are doing that you're clearly very good and capable at and you're going to stop being challenged with very, very soon. So it's really meaningful. Career progress is the best possible reward because that constantly raises the bar of difficulty. So that person that's very skillful is constantly being challenged. In how I think about things.

Speaker B: Yeah, I mean, I like this. I think that makes a lot of sense for me. And this question almost loose us back to the first one and these sort of concepts of control and things like that. But. But with again, the emergence or the growth of concepts like pay, transparency and the expectations that come with that, does not the expectation on a business to justify that career growth. The imposition is there and therefore kind of put us back into having to introduce some of these frameworks to quantify it or justify it and ensure that it's done in an unbiased way. And that's not just done because it's like Matt, the white male manager, saw another white male, uh, person and liked what they were doing and therefore promoted them, but actually they were doing the same thing as what Janine was doing. How do we avoid those sorts of things? And again, we're back to this sort of balance of structure and not too much, but enough that we're doing things fairly.

Speaker A: Yeah, well, yeah. So first of all, I would sooner not have that structure. Um, so I believe if a company is fair and open and participative, if you decide your own salaries and companies out there that do this kind of thing because they're all owners of the same company, the more money you take out, the less there is to invest in the business. So you start to think like an investor. If you decide your own salaries, you vote for your own managers, you decide who's going to excel. No one is up there deciding who goes up and who goes where. Think of all those times that someone's been promoted and everyone's looked around at each other and goes, why on earth did that person get that job? Participative. It's the people that they are going to manage are the people that should have a voice in who gets that promotion. So when a company is run that way, there is no need for, um, pay disclosures and reporting rules and legislation, all that kind of thing. It's naturally transparent. But again, m. Because of the failure of past companies, we're now in a situation where we do have to have these systems of control. So for me, and I'm going to come back to your other question, which are never fully answered, like, what do you do with this merit cycle? Then if you can't use any of these systems that I'm telling you, you shouldn't be using anymore, then what do you do instead? Well, I'm a big fan of getting rid of ranges completely. So you have pay for roles. You figure out as a business, again, collectively what roles you do and you do not need. Okay? That's the first step. It's not who you've got. It's about what jobs need to be done here. And you define those jobs, ideally broadly, so as not to bring fence people in. Um, we don't want to go back to an age of really, really tight job descriptions when no one wants to trust anyone or branch out because they're not going to get paid, all that kind of stuff. So you need some degree of job architecture now because of. Because we never pay people fairly in the first place. So we need job architecture. So we have that job architecture and we define that job architecture. And now we need to train people on what that job architecture is, why we have it, why we're using it, which is predominantly to solve pay fairness, I believe, at this point. And then when it comes to pay, we figure out the value of that role in the market. Well, the market's one factor, but there are other factors, such as cost of living and market conditions and various things like that, that. And then you set the pay for that job and the person in that job gets paid that amount. And the only reason that pay would then change, in my view, if you're abandoning pay for performance and you're paying fairly based on the job, is either because the market changed, therefore there's probably going to be some kind of cost of living adjustment at the end of the year because. Or some kind of, uh, cost of labor adjustment, I should say, uh, because that job's going to go up in value in the market. Therefore, that comes with a commensurate pay increase. But if you really want to get more money, you've got to progress, you've got to further your career and that's where you need to start again, showing that you're capable of more and demonstrating that capability. And again, I believe it's your peers that should be the ones that decide on whether or not you have done that to a sufficient degree to move up into a role that's going to cost all of us more money. So, again, if we're all owners of the company and we're participating in the way we do things, then those decisions all of a sudden carry more weight and you end up having more discussion. And it takes longer to make those decisions, of course, because no one agrees on anything. But when that decision is made, everyone will then be bought in because they had a voice and we discussed it and we may not agree entirely with that, but you decided collectively to do that. Of course, if you do have an external investor, it kind of changes that dynamic slightly. All of a sudden it's no longer your money. Which is why I'm a big fan of true ownership at the same time as a participative workforce. But. So that's kind of my answer. We do need job architecture, we do need the structures, we do need to benchmark, but I see no reason why we need broadbands and this dance every single year of merit cycles, which we all know doesn't result in meaningful pay differentiation anyway, so it just becomes a distraction from them, from doing the work.

Speaker B: I was going to say, I really, you know, having. I've actually had the fortune of implementing this at a few companies and I really love the idea of, of either pay tiers or pay points. They've got a few different names they go by really, um, like them, uh, I think for a few different reasons. One is, um, I'm a big fan of not negotiating pay at the entry to a company and just being able to say, hey, we, we fundamentally believe that the role is valued at this. We're going to have that conversation at the start of the process. If you agree, great. Let's go through the process and see if you're the right fit. If you don't, then you're obviously free to pursue other role and opportunities within the market. Um, to your point, massively reduces the administrative burden on pay and, um, orchestrating that within the organization, I think it makes it clear, um, there's no jockeying for being higher in the range. It's like, and I think this is particularly true if the company Pays fairly. And by fairly I mean they don't just go well the market says 50th percentiles is they go actually do we fundamentally believe this is the right value for the role? And obviously seen this show up in, in one company I saw that we did this pay tier approaching and they actually um, they looked at as an example the customer service bank, uh, benchmarking and they, they said actually we don't, we don't think the 50th is fair. They pay a really incredibly important role in our organization. We're going to pay them 95th percentile or something. Um and that was a really conscious decision for them. I mean you know the data at the point in time was um, it was quite a low paid role as it is often in most um, places. So that was a really interesting decision for them. M Another one that they took was the, that they had this concept of uh, a living salary and they were like actually just because the market median is there doesn't mean that we think that that's enough for people to live on and truly do their job effectively when they're not sure if they're going to be able to do something that we consider a basic right or an entitlement to be able to afford or whatever in their life. And so we actually went through this approach of defining okay, what do we think a living wage is? Do we think it's a one bedroom apartment in Sydney? Do we think like. And we really went down into detail. We think it's you know, the ability to be able to save you know, x amount of money per month from your salary. Like these are all criteria um, for us of what constitutes a living wage. Um, and these were like, and I think still are hugely novel concepts in, in, in the pay space. Um, so yeah, I find that really interesting. Another thing that I love and I, gosh I wish I had the chance to do this. I, I, I almost got to pilot this, this um, kind of concept of peer to peer rewards. And I like the idea. I've never seen it um, in action and in fact there might even be some case studies now. But in the kind of crypto bitcoin uh space there's These concepts of DAOs, these distributed autonomous organizations is what I think uh, it stands for and um, they tend uh, to have this reward model uh, of a peer to peer reward structure. So everyone, so, so in practice what this means is that JENS you get 10 points and I get 10 points and at the end of the month we allocate our 10 points to the people that we think had the most impact on the work that we've done. And that's a structure through which they're able to then assign probably crypto or Bitcoin or whatever in some respects. Um, but that's their mechanism. It's a completely, um, bottoms up mechanism for determining it. Because to your point earlier on in that conversation, if I'm working with you day in and day out, I'm infinitely better at judging whether or not you're great at what you do than a manager who might speak to you a week or sets the goals but doesn't otherwise intimately see the detail of what it is that you're producing. Um, and yeah, literally at the last company that I worked at at Oyster, we particular case and unfortunately ended up leaving before I had the chance to pilot something like this. But I looked at that from a

Speaker A: bonus going to be like, what was the response? So both of the two examples you mentioned, I was kind of curious as to what the feedback was.

Speaker B: Yeah, well, it didn't, unfortunately never. I think I left before we got to the point of even agreeing that this was something we wanted to pursue. So I'd really just done the research, put the concept together, put the framework together and started to float it. And then I think I was like, actually peace out, I'm going to go be a consultant. Um, but yeah, it's. So I never got the chance to see it in life.

Speaker A: I think it wasn't good enough to retain you at that company then. That's what we're saying.

Speaker B: Yeah, that's the only case study I know of. Um, but it just, it seemed like such a great. It's like the way I had planned to use it, this just for a bit more context, wasn't in base salary allocation because I think for me that would have been impossible with, you know, minimum wage laws and things like that. Um, and the way we were going to do it was because we didn't have a bonus program at all because we didn't believe in them and for a lot of the reasons that we talked about in terms of goal setting and you know, how the whole top down approach tends to work. We didn't have a bonus program, um, except for some occasional discretionary bonuses and the peer to peer, um, reward approach was one of the ways in which we were going to try and attempt to do this. Um, so yeah, it's like I said, I didn't get a chance to do it. So I can't say to you, hands on hard that it worked well. But I think this concept of peer to peer rewards really has a place. And um, yeah, I'm going to take this away as an action from this podcast, even though I don't think I ever do this. Go, uh, and see if I can find some great case studies on P2P rewards and how that works.

Speaker A: There's a few. I mean, first of all, I think I see it as, uh, again, just another example of a participated workforce. You're saying, we trust you to decide how to allocate our resources. That's basically it. Whether it's points, whether it's cash, whether it's bonuses, whether it's those off the shelf peer to peer reward systems that you can buy for any corporation with vouchers and all that kind of stuff. Either way, they're saying, look, we're taking some of the value that we could be returning to investors and giving it to our employees to say, well, you figure out what you want to do with it, um, and then they can use it. So I think it's a really strong signal because there's anything in power is a good thing. It's saying we trust you because like you just said, like, you know who's doing good work. So you're going to figure it out. You know, like say thank you to people. Use that. Uh, and your first example, by the way, PayPal did something very similar. I think it was PayPal. I'm pretty sure it was PayPal. A few years back they did exactly what you described and they said, we're benchmarking. For years we've been using mainstream tech database in North America, but when we actually looked at it, basically no one could afford to live on the money we were paying people. So we changed it and we set basically a floor or depending on region, exactly the same thing as your liverboard age. What is walking so on. Because we don't want people turning up to work worrying about whether they can afford dinner in the evening. Uh, it sounds so obvious to say that. Why would you want to employ people when they're so distracted by the ability to send their kids to school or whatever that they can't think about their work? It's like, no. And also these are some of the lowest costs in the organization as well. Why not give them an extra 20%? This isn't a, uh, big expense in the workforce force.

Speaker B: Yeah. And I think it really has to be. I, I think you're right. It's PayPal. I think there was one other company I can't remember off the top of my head, um, that that was similar where they were like, actually, it might have been Carter, and they were kind of like, you know, it ultimately sort of is a values based approach, which is that we can't, we can't see the, the benefit in not paying people a livable wage or a competitive wage. So, you know, based on what we can only assume is right of someone who is paid less than what we think they need to survive on, let alone thrive, we're just going to make the assumption that we should just pay. And this is. And again, I think it was Carter who took this. Who, uh, I think it was one of the founders that wrote a thing about their no negotiation stance and they were like, we're just not going to have it. Like, you're going to come in and here's the salary for the role that we're going to pay. Um, and if your expectations are lower, and I cannot, like I think I've mentioned this on this podcast a few times, is that I have seen the impact of offering someone more than their expectations and I've been a recipient of that myself, and I cannot tell you the impact that it had, the positive impact that it has on, on people. Um, yeah, it's just, it is honestly, like, it's staggering the fact that they show up so ready and driven to like, you know, to crush it for this company because this company has immediately just gone. We, yeah, we, we think you're worth this much, not what you think you're worth, because we've infinitely got, got more access to this data than you do. You're just going, based on your last role, what your friend says, you know, indeed. Or Glassdoor or something like that. We actually pay for thousands of data points and we know you're worth more and we're going to give that to you. Like, what that says to somebody is huge.

Speaker A: Is there anything more empowering than somebody saying, uh, we think you're worth more than you do? Tesla is such a lovely statement to make, isn't it? Um, and again, we're not going to be weighed down by your own interpretation. There's another example. Um, I cited this in my book because I just love it. Um, is Semco in Brazil, which for years had this wonderful participative workforce and they still do as well. Um, and they did this thing of letting employees pick their own salaries. You come to us and you let us know and then we'll have a conversation from there. And they found that generally speaking, people undervalued themselves or asked for less than they thought they were deserving. You had to have an argument the other way around about why they should actually have more than m what they thought they should be worth. So everyone assumes that if you open up these conversations and start saying, what think do you think you should earn? It's going to turn into some horrible fighting contest about, you know, getting more money. And, uh, I think I should get a million dollars. And no, m, you're not going to get. It's not really. That doesn't tend to happen as long as it's in a place where people feel trusted. They tend to ask reasonable amounts, which is fine. And also, if you don't have that conversation, you're just hiding problems you didn't know about. If you don't ask people what they feel they should be earning, then you don't know that they're dissatisfied with their pay. You don't know that you've got a problem that you do have. Have. So if you're afraid of. A lot of people say, we're worried about having these conversations. We're worried about pay transparency. We're worried about these pitchforks coming out. So. Well, you should be more worried about what you don't know. Uh, just hiding yourself away from these problems is not going to solve the problems. The problems are there whether you know they know, uh, or not. Wouldn't you rather know what the size of the problem is you have to solve before deciding whether or not you can do something about it? And for most of the companies that have fully embraced pay transparency, they never found that. They never found the pitchforks came out. They found that people appreciated them. They found this started good, productive conversations. And you identify problems that you want to fix.

Speaker B: Yeah, I think as you were speaking, I was thinking of some of the. Like what? I think some of the main objections are to these ways of work. And I think often it comes in probably a misplaced fear that employee expectations are going to be massive and we're just going to have to overpay on, on salaries. And your example there with the Brazilian company Semco is almost like, um, the infinite pto, uh, thing, which is that if you give people infinite pto, they won't take it. And actually they'll take less than if you say you've got two weeks or four weeks or whatever. Um, and so actually you do need to encourage people to take it. And it's interesting that that holds true, uh, with salaries. But I think it's where I see, I guess A lot of the hesitation is a, probably that fear of like, we're going to have to overpay on salaries, our wages bill is going to go up. Um, and B, is that no one's really ever seen these sorts of things in practice. And an example of that is a peer to peer awards. We were going to have to try something that I don't think had been done before, um, in terms of how we awarded bonuses. And there's, there's a scariness to that where, you know, is it going to have the impact that you want? But I think again, that participative workforce, workforce mindset is that, you know, let's go in with this intent and work with our team to achieve it and you know, gather that feedback and it's not going to be perfect the first time and actually come at it with the intent of, of building empowerment and building trust and freedom and autonomy and all these sorts of things in our workforce rather than just going, oh, uh, I don't think it's going to work because I don't know, I've never seen it happen before. So let's just default to below. Meet succeeds, we give 3, 5%, you know, et cetera. Boom, done.

Speaker A: That's the thing like, and you put the key word I think you said earlier was it's fear. Like there is no risk to keep doing what you've been doing. You're not going to get told off by your CEO as a chief people officer for running another merit cycle with a one to five performance review. Like, is there, so there is a fear. And again like if you depends on the kind of company you are, like that, that's not a good position. You should be willing to make mistakes. Like a, uh, company that's willing to make mistakes is one that evolves and gets better at what they do. So if there is that fear, and the thing is most people, it's, you know, it's a fear of the unknown, but it's also, you know, it's this like no one wants to be the one that gets it wrong, you know. So unfortunately that does, I think, often become a key driver of why things kept. These sort of rituals keep getting repeated and why people are afraid of pay. Transparency is because it's going to create a load more work for me. I'm going to get the fall for this. Um, fear is a very powerful driver of um, inertia.

Speaker B: Yeah, I couldn't agree more. Um, I want to pivot to more a macro environment. But before I do any for the Heads of people, the sort of startup leaders that are listening to this. Any, you know, based on what we've talked about, any kind of main takeaways or advice you'd give them for considering some of the approaches. You know, a lot of what we talked about is, like I said, it feels pretty radical. Not a lot of it happens in the workforce. Um, not in my experience. I've had limited opportunities to do some of these cool, novel things we've talked about. But for those who are going, actually yeah, I really like a lot of what I'm hearing here. What would you say to them to try and start taking steps towards that?

Speaker A: Well, first I'll say it's more common than you think. There are a lot of companies that do this kind of stuff. You just don't tend to hear about them. They've been around a long time and then not. They typically are not public and they're not VC backed, they're employee owned so you don't hear about them. So you know there's um, like Semco was an example. Valve is a gaming company which they leaked their, remember that they leaked their employee number. It's a wonderful example of a participative workforce. Great illustration of how to do that. Um, there's Morningstar in the us um, there's loads of European companies, there's all the co ops across the US and Europe. They all operate with an employee owned, employee decided model there. There are actually a lot of examples. They just tend to be an older cases. When you look at tech, they're a younger industry. And honestly I do think there's an arrogance about tech that we're going to figure out how to do it. We're tech, we can figure it out. And I think there's an arrogance that means that you don't tend to look to the old school as ways of running a company. So I'll say, uh, so that's the first thing I'll say. There are loads of good examples, you just have to go and search them of companies that do this kind of thing and have these models. Uh, another one is Whole Foods. They had pay transparency many years before everyone else did. They had simple pay for roles and they had transparency across the entire organization. I think of what everyone was getting paid in every single role. Um, so they are out there. But to the startups who are saying, well, who are probably getting to the point where they've hired someone that says, okay, we need performance management, okay, we need salary bands, okay, we need this, this, this, this, um, I would probably say like trust people. Like again, Ernest Hemingway said the best way to find out if you can trust someone is to trust them. Trust your employees, give them a chance, show them that you're in it together and give them a chance to make decisions yourself. Before you hand down a decision, discuss with them whether or not that decision makes sense or what alternatives there might be and get buy in. So that's at uh, the core of a participative workforce. They might all say we want a 1 to 5 performance rating in a merit cycle and then go and do it. And then if it doesn't work well, you ask for it. This is your decision. If you don't want to do it, let's take an hour for next year. So as long as you make those decisions together, then you can learn from it and move on as a group. But I would avoid the tendency to hand down and press upon systems of control to people that don't need or want it. Again, it's assuming the best of intent. If you hired people, smart people, then they're probably going to work with the best of intent. And Steve Jobs had a wonderful quote where he said we don't hire smart people to tell them what to do. We hire smart people so they can tell us what to do do. What's the point in taking a smart person if you're just going to give them a daily routine of task? You might as well just, you know, get a college grad to do that. Like there's no point. So I don't know if I m can say this in a really succinct way, but I'll just say like, trust people. Talk to them, listen to them, like ask them what they, what's important to them and sit down and make decisions collectively. It will take longer and I know in the startup environment it doesn't feel like you've got time for anything apart from shipping and you know, getting the next product version. Now I know that I'm not oblivious to that, but if you take time in the short run, it will save you a lot of pain in the long run because you've got an entire team of people bought in to the decisions you've made and they feel they have a voice they feel they're heard. That's worth so much more than meeting a next product launch to me because then you're actually laying the foundation for long term success, not just next quarter's results.

Speaker B: Yeah, I love it. So lean in on the trust trust first. Um, and kind of see where you go, I mean I couldn't imagine many organizations wouldn't appreciate having less structure certainly on the performance side of things. Um, and often I see that as a threshold at which you tend to shed your early employees, the ones who probably know a lot more about your software or your product or whatever, your services than those who've just joined your organizations. But it tends to happen at around the time that a lot of that bureaucracy is introduced. Right. They go, actually I really like the environment where we had freedom and autonomy and so it's potentially a way to hold onto m the those people longer. Um, and to your point there are, you're right. Actually there are some great examples and maybe, maybe you and I need to create a uh, database of these, of some of these pay practices in work. And one that I would add to your valve example is that I think they, so they had not only their handbook release but their salaries I believe leaked as well not long ago. And something that came out of that was that for an organization that has this kind of employee owned uh, mindset and decentricity, I think they've got either the highest or second or third highest revenue per employee of any company in the world. So you know, it's, it's not for nothing. It's, it's, they ask. They're an incredibly, hugely successful and profitable organization, they pay very well. Um, and yet the company is, is, is even more successful than, than its peers. Um, although I don't think maybe they have one. But yeah, so there's an example of you know, being great not just from a, an employee perspective and uh, a practices and reduced admin, but actually from a commercial one as well.

Speaker A: Yeah, that's huge as well. Again, there's the assumption that if you don't pay someone to do it then they're not going to do it. Or if I don't measure whether or not you're doing it, then you're not going to do it. Or if I don't goal you on this, then you're not going to get it done. And then it turns into all these really tight restrictive goals that get churned out and it just isn't true. If you're bought into it, if you enjoy your work, if you like the people you work with, with, think no one wants to change jobs every two years, but everyone does. But they get fed up and they go and try and find somewhere else to get their work done. If you find a place that generally lets you get that work done and you believe you're paid fairly Then you're going to do right by that company and your colleagues. You're going to do it for your colleagues. You're going to get it right. You don't need to measure every day or every week or every month or every year. You can just trust that they're doing the right thing. And that probably is the case. As long as there's. I don't feel that it's all in vain. So, yeah, like, uh, and then the macro test is, are you being successful as a company? What does success mean to you as a company? Are you achieving that? Then we don't need to worry about it. We don't need to worry about all that or the minutiae of management performance management, because clearly we're doing something right. Again, it comes back to not everything that counts can be counted. And employee engagement, it's difficult to count them, but it really does count. If you've got a team of really happy, motivated people, they're going to work really, really hard to protect them. And it's amazing what people do to protect their own interests and their own company and place of work if they want to do it. Um, and again, I'm going to use Semco as one more example here. One of the divisions was faced with the prospect of layoffs, um, because one of their products was going down. The Brazilian, um, political situation at the time was tricky and they did all this stuff that made it difficult to get sales and all that kind of thing. And, um, one possibility is, okay, we're going to lay off, um, a bunch of workforce. Um, but the head of the business unit had an alternative idea which the CEO, uh, approved. Antonio Semla. Um, Ricardo, sorry, Antonio was his father, I think. And Ricardo basically said, yeah, okay, we'll do this. And the proposal was we're going to collectively agree to produce our pay. Uh, we're going to collectively agree to cancel our contracts and we're going to clean things ourselves. And the business unit has head said, I want to be the first to put my hands up. I want to clean the toilets. Right? I want to do that so we don't have to pay someone externally to do that stuff. Um, and they said, okay, we're going to, we're going to, we're going to downsize this. We're going to do that. We're going to share in this pain together so we can figure it out. Um, and some people took, um, said, okay, I'm going to take a job loss, but I'm going to buy this equipment from You I'm going to create my own company and I'm going to sell back to you. And they started diversifying that as well and did that. So they created, they spawned a whole bunch of other business owners as well. Well we talk about ownership mentality. They created owners as a means to save their own business who then became their favorite suppliers and the other side as well. All this happened not out of any kind of McKinsey strategy. It came about because people enjoyed their work and they thought creatively about how to fix a problem they were all facing together. Now I would wager that a lot of people in the VC backed company are not going to do that because they know that it's easy to go and leave and join another VC backed company. It's going to be the same kind of formats. But if you have had the ability to make a company even in the VC world where people really, really wanted to stay the long haul, those people that left because they missed the chaos and the innovation, they stayed because they can still see it. They never got that structure thrust down upon them. Then those people that are still there, they might collectively try and figure out ways to do that stuff if they're empowered to do it. So again it's just one example. They're all out there, these examples. But fortunately good news stories don't tend to make it into the headlines as much as stories of failure.

Speaker B: Yeah, well I was going to say that's incredible leadership and I was going to use that as uh, a segue but unfortunately is to a bit of a doomy gloomy topic which is the one I want to talk to you about which is the current pay environment. So there's, you know, I think I read report after report that's, that's really indicating that the kind of wage stagnation that we're seeing, unless you're in an AI company or in an AI role is really going to continue for the foreseeable future. And, and uh, I'll start by saying what are your thoughts? And ah, actually I'll say this is for more Western, um, nations, uk, Europe, us, Australia, Canada, those sorts of places. Um, I'm curious about what your thoughts are on what this means for companies and employees.

Speaker A: Yeah, it's tricky. This is slightly outside of my area now as you're getting into economics. Right. But I do find everybody interesting this problem so I always like to look back and try and see previous economic patterns and these kinds of things. Right. So when you first had the computer revolution, the prediction was computers are going to do everything, you're not going to have to work anymore. Da da da da da. Um, but rightly or wrongly, we have a social norm that everyone should have a job. Everyone needs to earn a living. That's something we all agree on for some reason. Well, not everyone does. There are philosophers out there that disagree with that notion that we need to work, but it doesn't necessarily need to be for a living. But anyway, that's the way things are on. And what happened was you did have that same wage stagnation for jobs that were being replaced by autonomy. And we're seeing the same thing again. The jobs that are being replaced by AI are stagnating, but the jobs that are being created by AI are, uh, growing tremendously. So there's a lot of professions out there. So I think the job of companies is to recognize that and embrace it and re skill people to be ready for, for it. So, you know, the default is layoffs. And I hate it. I hate the default. I know it's necessary sometimes, but I hate the default to layoffs. Again, there are companies that don't default to layoffs. They will look at reskilling and retraining and redeploying and furloughs and temporary, um, sabbaticals and all this. There's loads of other stuff you should be trying before you're laying people off. Um, and some companies will use a sabbatical to say to someone, go away and think about, about what you want to do next. Because we frankly don't need, uh, accounts payable person because AI is handling it, whatever it may be. We don't need a talent acquisition unit because someone else is handling it, whatever it is. And they might come back and say, well, actually I've been training in this, or I want to do this, or I'm interested in that, or there's another job you've posted and I want to be reskilled for that. But the point is, we've got to accept the nature of jobs is changing. And again, if you look at the first computer revolution, it did change, but we didn't see mass unemployment. We created new jobs to replace the jobs that were lost. Now, whether that happens to the same degree, who knows? But we can't pretend the problem's not there. And we can't pretend that jobs that have been around for 50 years are going to still be around in another 50 years. So I think it's the job of companies to come face to face with that and have honest and frank conversations with people in the jobs that are being left behind, about the lack of growth available in that uh, discipline or that profession, them and to find ways of reskilling them or being honest about them. In a few years time that job's not going to exist. What I hate is just this. Well actually your job is no longer going to exist as of this morning. But it doesn't give anyone an opportunity to come up with any kind of solution. We talk about employees finding solutions to their own hardship that doesn't allow any opportunity to do that. And it's from legal fear that if you don't get rid of them immediately and there's going to be all these problems and things. But that's kind of what it comes down to. You have to acknowledge that jobs are going to change and embrace that head on with your employees, not pretend that's not happening.

Speaker B: Yeah, there's a lot there. I think a lot of what you've said, particularly at the end there, has contributed to uh, a uh, worsening sort of loyalty epidemic where because people might wake up and suddenly they aren't able to log onto their computer. You know, it goes back to what we talked about earlier around that sort of transactionalization of the relationship is that they're much more susceptible to a company that offers only marginally more or better things to them. And so because you know, I don't know if actually tomorrow I may not have a job, there's almost no risk to going and doing that. Although I'm sure we can touch on the topic of job hugging in a minute. Um, yeah, it's such an interesting environment. Um, it's. Yeah, I was going to say maybe, maybe, maybe now's the time to start talking about job hugging. I was having this conversation with someone the other day, but it's like, it's interesting that we've, we've got like a less loyal, less stable left, less safe or secure employment, um, environment I would say at the moment. And yet we're, we're seeing this um, reticence, this lack of interest I guess under the banner of job hugging from a lot of people in pursuing alternative employment. And where I see this presents an issue from my perspective, particularly in a stagnant wage environment, um, is that my experience and the experience I think of many, if you know, if the reports that I've read or studies I've seen are to be believed, is that often some of the biggest pain creases and jumps you can get in your career when you move from one company to the next and So I see jump hugging through threatening a lot of that. And so that's where, you know, I kind of wonder are we, this concept of a K shaped economy gets talked about a lot. Are we seeing a similar thing from a jobs perspective where these sort of new jobs that are being created by AI are going to pull away from a, ah, you know, from a salary perspective and, and the ones that aren't, that are sort of left behind because companies aren't prepared to upskill their people and, and potentially people are too fearful to upskill themselves or, or whatever it might be. Uh, will they continue to sort of wither and fall away and. Yeah, I don't know. What are your thoughts?

Speaker A: It's a tricky one, isn't it? Uh, so the nature of work, again, it uh, all comes from factory work, 9 to 5, Monday to Friday, it's all factory work. It came at a time when you need daylight hours to work, farming, all that kind of stuff. It's a very static concept of what work is. And the idea is always that the amount of you generate should be the amount you earn. This connection between effort and output and all this kind of stuff. I do think in the long term, I don't even know if this is a generation in the long term that needs to completely change. Like we're seeing with gig work that's getting a bit abused but that will get regulated and things. Gig work's a good example. Um, like you know, you don't need someone all the time. Monday to Friday, 9 to 5 for most things. We should have way more flexibility in how we think about the concepts of a job and what people do. Unfortunately, all the systems we've set up have gone counter to that and pay fairness runs counter to that because you need those systems to protect the jobs. But in reality we should be completely open to people doing all kinds of different things as soon as the opportunity presents itself. And again, people are very, very quick to learn if they want to. So if you created the culture of learning and continuous learning and a real culture, I don't mean just putting out programs, I mean a genuine acceptance that, oh, I can't get this done because I'm actually learning something else. Okay, don't worry about, about it. Learn that thing first and then we'll come back to that, you know, actually prioritizing learning because it's in our long term best interest. The first thing you'll do is you'll send a message that you care about your employees. So again, come back to that startup. The advice to that startup, show them that you're not the company that will drop everyone and lay them off at a moment's opportunity. If it means you can generate a little bit more ebitda. Show them that, prove it, say it, and then come true on that. That's one way to differentiate yourself from other startups that do lay people off all the time. Um, but yeah, this other thing, I just think we need to free up the concept of work a bit more and get away from the factory model of 9 to 5, Monday to Friday. Um, we need people to feel fair and balanced in their work. We don't want to overwork them but it's really consumption based. We need people to work as much as we need them to work and then they need to get as much from that as they need to get from that to be able to be paid fairly. And there's a whole bunch of uh, non quantifiable factors that go into that which makes it very, very difficult to get right. But um, I don't know. I think there's plenty of other people that have theorized major shifts in the way we work. It just doesn't, it's never really happened. And I think gig work is the first real indication that we are thinking more creatively about the concepts of work. Um, but I don't know exactly what direction that's going to go.

Speaker B: Well, let's lean into the theorizing because I have two theories of my own and, and one of them's revisiting the item we talked about earlier. So one is that uh, at least anecdotally I am seeing a massive increase in not only appetite and interest but in people. Becoming fractional is one term that I've seen explode. Gig workers. This model of work that I think was very foreign and maybe this is one of the great things that companies like Uber and Doordash and things like that have created, uh, is a familiarity and a comfort with this style of working. Um, certainly there's concepts like overwork that I think do a disservice to it. Um, but overemployment rather, um, that I think do a disservice to it where people have multiple full time jobs. Um, but you know I'm really seeing this sort of explosion in the interest and uptake of fractional work. And I mentioned, um, you know, I think before we started this conversation that um, I've started writing more about my own experience as a, you know, know, self professed fractional employee or a consultant because I think there's so Much appetite and interest from my network in, in how people can follow that same path. Um, so I think that's one thing that I, I will see, uh, or I am seeing increase. And I think you're right, there's still some reluctance, but I think there is an increasing okayness from companies in.

Speaker A: Stigma. Right, yeah, there needs to be a bit of a stigma around it. When we called it part time there was a stigma. Now we're calling it fractionally. That's held.

Speaker B: It's been rebranded. Yeah, exactly.

Speaker A: Yeah, yeah.

Speaker B: Uh, and then the other one that I have is that I wonder whether or not this will see some sort of reemergence of, you know, of the union. Uh, I think it's a, it's something that's been in decline for a very long time. I can certainly speak about it here in Australia. I see them, they continue to lose members year on year. They continue to consolidate. We now see unions that used to be just the metal workers, unions that are now the, you know, know, they cover 10 or 12 different trades or whatever it might be. Um, so yeah, I'm curious to see whether or not that will be something that we see come back because we're seeing wages arguably drop to ah, or stagnate to a level where you know, we talked about living wages before. You know, I would say that there's in a lot of places there's people that are receiving ah, a ah, wage or a salary that is probably not livable. It might be market, um, but it's not livable. And I wonder if we're likely to see that kind of um, ambassador for these people re. Emerge through, through the union system. I think there's probably a lot of obstacles in, in front of uh, unions before they, they do come back. I know here in Australia I don't know what it's like in the rest of the world, but they, they tend to have been faced um, with a lot of corruption issues and they tend to not always have their best, uh, their interests, their members best interests at heart. Um, so I think there's a lot of internal things that needs to be resolved there before. But I feel like there's probably a place for them in the future. And um. Yeah, I'm just curious if you think you'll see that sort of structure return or reemerge or something like that.

Speaker A: I mean it'd be interesting. I think you're right. They feel like historically speaking they're diminishing in most of the Western world. I mean part of this was they've done their job. We have all the things that unions fought for us to have. We have holiday pay, we have working hours, we have safety, we have minimum maximum working temperatures. A lot of this stuff we take for granted came because, because some people took a stand and said this is unacceptable at some point. So it's interesting in America in particular it's got a very negative connotation unionization and they're very open companies are very openly. Yeah, so we don't. Which I think is insulting to workers uh, in many ways. Um, to suggest that.

Speaker B: I think that's why they've branded it that way, isn't it? It makes it. The stigmatization of it makes people think twice potentially about becoming a member and therefore yeah reduces membership.

Speaker A: But I think you've got three forces, right? You've got companies and you've got governments and you've got the workers. Um, if you want to simplify it a little bit. So governments will come in and put minimum wage legislation in place. But a lot of the changes that governments have done is because of the labor unions encouraging raising awareness. So I um, think all the union is, is a group of people taking on an equivalent level of power to the company and their media work and relationship in any given company is you as a person have far less power than your employees employer. And we know that historically that means an imbalance will mean that that individual will get abused unless they've got protections. And we saw it with uh, the industrial revolutions in America in the UK and we saw unions get formed as a response to that. So I think basically my thought is everyone's got a breaking point um, and we can't really continue in the direction we are indefinitely without something coming to a head at some point. People only get screwed over for so long until they do something about it and it either happens peacefully or happens violently at some point. But you don't get to take advantage of a group of people indefinitely and not have any repercussions.

Speaker B: Yeah, I agree. It'll be interesting I think, I mean speaking totally from an outside in perspective, I think certainly not going to say that happen in maybe a Donald Trump era of presidency but potentially future when the as a more maybe centre left or something government um and I mean we have a centre left government in power at the moment here in Australia and I don't think even for us would see the reemergence of it but um, we're probably a little bit more socialist than the U.S. yeah I think

Speaker A: wealth gaps are a problem and this is a key indicator as well. Wealth gaps are growing. Again, history shows what happens when the few have all the wealth that, uh, eventually it breaks. You saw it with various revolutions throughout history in various parts of the world.

Speaker B: A lot of beheadings there.

Speaker A: Generally either kind of evens itself out through legitimate means like unions, or it's some kind of revolution that fixes it. But again, the wealth gap cannot continue to grow. And we joke, executive pay, for me, is a massive problem in America in particular, it is completely unsustainable to have one group of people earning so much money, money for the value that a large group of people helps to generate. Um, again, if you've had more employee ownership, then that would start to naturally soften. Um, but, yeah, the executive pay is a key lead indicator of those wealth gaps. And executive pay is. It's been broadening and widening. The executive pay gap has been widening for so long now. Again, it can't go on forever. It just literally can't go on forever. So I think at some point there'll be a breaking point there.

Speaker B: Yeah, executive pay is an interesting one in it. It's. I mean, it's a topic I'm keen to explore a little bit more with you as well. But it's one of those things where. And actually someone that I follow a lot is, um, Scott Galloway. I'm not sure if you've heard.

Speaker A: Uh, yeah, I know the name. Yeah.

Speaker B: Yeah. And his perspective is similarly critical of executive pay, which is that, you know, typically, uh, a board will retain, uh, you know, an organization to come in and share some benchmarking for executive roles. Um, the CEO, who arguably is. Is in a unique position compared to the rest of the organization, to advocate and influence, um, for higher pay. We'll do so and we'll say, hey, you know, why wouldn't you want, uh, above median results? And therefore I should be paid above median pay? And you're right. When. When 80% of the peer group sits within the top 50%, the median just keeps moving up. Right. And so, like, what. What's the break? How do we break that? Or how do we. How do we help companies see that it's not sustainable? Or actually, maybe your CEO should be in the bottom half. Like, I don't know. What's the answer?

Speaker A: Well, it's like, you know, everything we've been talking about applies to humans. Exactly. Humans, like, let's not pretend they're anything different. They're humans, like all of us. They make mistakes and they enjoy. They like to enjoy their work and they don't like lazy, they don't like, ah, bad work. They're not lazy but we can still make them lazy. And like we talk about. Yeah, first of all, like, to differentiate pay practices between execs and everyone else's is a perilous area. The fact that you have an executive advisor worrying about this group of highly paid individual while everyone else is left to have their wages stagnate is a problem in itself and sends us frankly pretty awful signals everyone in the company about who we think is important. Um, and then you've got these aspirational peer groups or they're paid like this, but we want to perform like that. So we're actually going to compare ourselves to that group of companies that's actually 10x the size of us and 10x EBITDA. We're going to pay our execs like that so they can make us like. Then it's like, well, you're going to pay everyone else like that as well or just the execs. What's going on here? How's this going to help anything? So I do think it's needed legislation for a long time. Executive pay, um, you've got massive conflicts of interests going on with executive pay advisory. Um, I remember there's a piece in the Guardian years ago in the UK about just slamming the exportation of the exec comp advisor into the uk. It really did start life in North America and then it ended up up in the uk. I've done executive advisory. It's a dirty, disgusting business in my view. Um, and it's fraught with problems. Uh, and you basically get brought in if you tell people they should be paid a bit more. Guess what? People are pretty happy about that.

Speaker B: Um, no one tends to push back, do they?

Speaker A: Yeah, it's kind of like similar to the audit and accounting problem. You know, if your auditors are also the people generating advisory dollars, then are they really going to say no to signing off a new account? Answers similar, but that's also regulated. So yeah, executive pay, uh, um, it's not my favorite area. I did a bit of work, executive pay, but I've done my best to stay away from it. My general response to any company asked me to do executive pay advisory is okay, but brace yourself because I'm going to tell all your execs I need a pay cut. Um, and I know say that you need pay ratios and need to be far more worried about the people that are actually delivering the value than the people that, that are handing down the strategy. And let the strategy come from the bottom up instead. Because like, I don't know, the idea that you can just hire someone in that's going to come with a wonderful strategy. There's no real evidence to show that that really does happen. That you do have really good CEOs that have that, that expertise. But again, most of the industry changing innovations did not come from a CEO on a massive multimillion dollar pay package.

Speaker B: So what do you say? The role of the CEO then most importantly, plays their part.

Speaker A: Uh, that is a very interesting question. I'm glad you asked that one because I think that the truly amazing CEOs are the ones that we're going to go full circle here. Embrace the tension between tangible results and abstract creativity the best. Their job is to listen to their investors, hear what they want and figure out how to deliver that, but also manage their expectations and understand what it takes to achieve those results. Results. And again, those investors might say, you want quarterly EPS targets? You've got to meet your quarterly. Quarterly EPS is one of the stupidest ideas. No one cares about quarterly eps. That matters. You don't care about quarterly EPS for your pension fund or your 401k fund. It's just not important. I care about what it's worth when I retire. Over the long term, we should be thinking long term. So a CEO's job is to manage that expert that tendency to shift towards short termism M and to translate those goals into abstract problem solving among the rest of the organization and embrace the fact that it might take short term pain and failures and losses and wasted investments in order to figure out if there's areas that we can use to advance our company forward. It's again, it's Steve Jobs. He was the perfect example of this. He didn't hire people to tell them what to do. He hired them so they could tell him what to do. They came up with those products and they came up with those ideas that have changed, changed entire industries and product segments so that if you actually look at the genuinely, um, revered CEOs, that's how they operate. That's how they think. They don't just hand down objectives quarter after quarter and do MBO relentlessly and assume that's going to fix everything. They might do it for a bit and they'll probably get the results for a bit and everyone will celebrate getting the results for a bit. Jack Welch is very much of this opinion. It was all about results, results, results, results from a bit. Until GE ceased to innovate whatsoever, all their engineers Fled the company and they just basically transformed to a financial services organization. This was once a titan of innovation that invented things like the washing machine, uh, pretty much the modern version of the washing machine, the fridge. They just stopped doing all that innovation and shifted to become a financial services company. So, again, if you want more of the same, then there are certain CEOs that will get more of the same and that basically sales leaders, leaders. And they'll deliver on the results. But if you want long term survival, you have to figure out a way to get innovation, and that doesn't come from those quarterly results. So that's the short answer. Well, that's the long answer. The short answer is, uh, that's what a good CEO, uh, looks like to me for long term survival. And if that's my retirement, that's what I want to see in my CEO. And if I'm an employee that owns some of that company, that's also what I want to see as well.

Speaker B: Yeah, I like a lot of it, but, man, I couldn't imagine a better point at which to put a bow on this. So thank you so much for joining me. This has been such an insightful conversation. I'm sure, um, a lot of people listening would agree. Um, we've covered a lot. Tell me, tell the listeners, where can people find you? Where can they find your book? Um, which, by the way, I couldn't be more of an advocate for it. It was such a great read. And a lot of what we discuss here is laid out and in, uh, much greater detail there as well. So where can they find you? Where can they find your book?

Speaker A: Thank you for the plug opportunity. So, yeah, what I do, what Pay costs is available on Amazon. You just have to search it or find a link in my LinkedIn profile.

Speaker B: I'll put the link in the show notes.

Speaker A: Yeah, yeah. Um, I'm on LinkedIn. I love connecting with people on LinkedIn. I love chatting on LinkedIn. I love arguing on LinkedIn as well. But healthy debate. I think we all need to have more healthy debates. So. I agree. Find me on LinkedIn. Tell me why you disagree with me. Listen, have a thoughtful discussion. Let's look at both sides of it. Um, yeah, that's pretty much it.

Speaker B: Amazing.

Speaker A: Well, this.

Speaker B: Thank you so much.

Speaker A: Yeah, thanks, Matt. Thanks so much for inviting me. Like, I enjoy all the other podcasts as well. So, um, this has become a really fun resource for people to learn more about this space.

Speaker B: No, I appreciate it. Thanks for the reverse plug. All right, uh, let's call it quits thank you, mate.

Speaker A: All right. Cheers man.

Speaker B: Thanks for joining us on another edition of the foundation series. Make sure to head over to our website to subscribe to the foundation series for monthly editions featuring future interviews on startup compensation. In each edition, we'll explore the different strategies, trends and challenges faced by startups around the world. If you have a burning topic you'd like me to cover, or a standout guest that you want to hear from, drop me an email so I can dive deeper, uh, into the compensation topics that matter most to you. Join me next time as we continue to uncover the strategy, strategies and practices driving success in global tech startups around the world. Thanks for listening.