You Get What You Pay For

Feb 24, 2022

A recent study by the Harvard Business Review found that “price-sensitive” companies are more likely to be less profitable than those that invest in their talent. The research found that these price-sensitive companies are more likely to cut corners in areas like people and innovation because of cost considerations.

The article continues to argue that these decisions often result in a company’s inability to keep up with new technologies or changing demands, and can lead to a decline in the company’s competitiveness. It concludes by saying, “Companies should pay for what they need rather than what they can afford.”

There are many ways to save money in the short-term, but in the long-term, those cheaper options often end up costing more. It’s not just about spending more money for a better product, service or new hire. It’s about investing in the right people and processes that can give you a competitive edge.

The People You Pay To Perform

Let’s put this ideas in perspective of your employees. There’s always going to be a natural tension between the compensation package a company is prepared to offer and what the employee is looking for, so companies often try and manufacture solutions that “save” the most. Some common scenarios in how this plays out include:

1. The Newbie: The organization looks to hire an unseasoned professional for a much smaller compensation package than they would the experienced veteran. The thinking is this person can be developed into a high performer.
2. The Mover: The organization looks to hire from within, moving somebody they feel has potential from a role where they’re thriving or succeeding into a new, unfamiliar but important role in the company.
3. The Old Pro: The organization takes the leap on a seasoned pro at higher pay, and the organization expects this person to satisfy a specific role or function with specific responsibilities.

Here’s how each of these scenarios commonly plays out:

1. The unseasoned professional quickly finds themselves in over their heads. They’re frustrated and overwhelmed, and the company grows frustrated too at their perceived lack of progress. It’s not long before this person quits – setting the company back to square one in evaluating how to fulfill this position. Meanwhile, responsibilities are having to be covered by other, already busy employees – who then grow frustrated with what they perceive is a lack of leadership on the issue. The issues – and “expenses” – compound.
2. The company that moves a valued employee from a familiar role to a new role often relies on a perception that this employee will surely succeed here as they did in their other role. But it’s possible – likely even – that there is little training for the new role. Expectations are high but organizational preparation is low. The employee starts feeling the pressure to get things right, and they’re growing frustrated even as they continue to do their best. Meanwhile their old role is now unfulfilled, so the important work they were doing isn’t getting done or it’s been filled by somebody new who may be struggling to meet previous metrics or expectations. The issues aggregate.
3. The seasoned professional quickly acclimates to the new position and responsibilities, makes the role their own and is making the desired impact. Great! In fact it’s not long before they have new ideas to improve or transform aspects of their job or even the organization. They inevitably start bumping into friction from decision makers on agreement on those ideas, how to prioritize them or who should be involved. The company starts thinking – we didn’t hire this person to create new problems, we just wanted the old ones solved! The issues increase.

All That Saving Sure Is Expensive

In each scenario, the company is coming from cost-savings perspective that almost always falls apart.

For the Newbie, their morale plummets as confidence grows shaky. Performance stalls as they try and get their bearings. Eventually they quit, realizing this isn’t a good fit. Now the company has to start all over, having generally wasted the opportunity they had with this employee’s tenure. Time and money were wasted with little or no impact.

The Mover, who’s been with the company longer and likely has some influence, starts expressing their frustration around the water cooler. Pretty soon their frustration is spreading among a small but powerful cohort of friends or loyalists. Company culture is compromised. It’s not just this employee’s performance that starts to suffer, but now multiple people are looking at leadership with doubt. Their old role, meanwhile, has not been fulfilled in ways that meet previous performance expectations so that department or team is feeling new pressure and frustration. Dominos are falling all over the place.

Finally the Old Pro, who’s receiving a handsome compensation package, is growing frustrated with inaction as they want to assert themselves with confidence in the role or company. Knowing their value, they’re eventually no longer keen to stick around. The company finds themselves again back to square one, and this time might be reluctant to take this same course. “Maybe we should try and hire from within,” they think. “Maybe we should hire somebody fresh out of business school and give that a try.”

Well we know how that will go.

Beyond Comp: Creating Engagement That Works

In all cases, it’s not the employee that failed here – it was the organization. Here’s how things can be different – and better.

• The Newbie and Mover will benefit from strong training and mentorship. Temporal expectations – by three months you should be able to do this, and by six month you should be able to do that – should be clear, realistic and agreed upon. The company should make clear what kind of support they will offer to help achieve those milestones. Regular touchpoints and connections should help stay ahead of questions or frustration. The employee should feel ownership of the role, and that their input is valued and actionable.
• The Mover will benefit from a thorough pre-hire process, where they’ve involved in shaping their transition from one role to another. They might even involve their existing team or department to help shape the transition plan. What-if questions should be addressed before the move to the new role, so everybody understands as much from each other as they can. Leadership should demonstrate commitment to putting the time and energy into the employee’s adoption of the new role. Leadership should also be involved in helping the team of the “old” role feel connected to the process for replacing this person. 
• Finally, the organization must recognize that often high performance professionals aren’t just good at their jobs – they’re cut from a unique cloth. They’re often impatient for change, confident in their potential impact, and ready for increased responsibility. They grow bored with the status quo quickly. Leaders have to be ready for this. In the hiring process, develop mutual understanding not just for what the responsibilities of the role are but for the kinds of personalities that will be involved. Make sure everybody feels like it’s a good fit.

Avoid All or Nothing

One reason why fractional resources work well is the company can benefit from high performance experience and expertise without the investment and overhead of moving people around or making new hires. In many ways a fractional hire can help shape the responsibilities of a new role, or demonstrate competencies that the company can be sure to look for later if a more permanent hire becomes necessary.

But even in the case of the fractional resource, you get what you pay for. Consider the value that’s being delivered. What’s it worth to the company or its leaders to have a job done? To have it done right? To not have to think about these issues or involve additional people or resources in addressing them? This value goes well beyond how many hours or this many deliverables. 

Of course costs savings are important, and every company should stay within what they can afford. But it’s important to avoid chasing the least expensive options. They rarely turn out to create much savings at all, and are often more costly than the company expects.