Salaries

This is a topic that’s always been tricky to tackle, but I’d like to share a few thoughts on it.

If we start with the theoretical side, in economics they teach you:

1) the theory of marginal productivity. This explains that certain roles produce more, and therefore should earn more. The theory sounds lovely. Especially 100 years ago in factory or farm work, where your productivity was measured by the kilos you harvested, but nowadays, how do you measure this in a logical way? My answer: there isn’t one.

2) And the theory of human capital, where they explain that differences between people stem from the investment one makes in oneself through education… Here fits the typical anecdote of the consultant who arrives to fix a machine that nobody else can fix and which costs a fortune; he looks at it for two minutes, tightens a screw, and the machine works again. When he sends the €1,000 invoice, the boss gets angry and calls him, asking how he can charge €1,000 for two minutes’ work, and the consultant sends a breakdown of the invoice, stating: €1 for the time taken to tighten a screw, €999 for knowing which screw to tighten. OK, this theory makes some sense when it comes to salaries, but the reality is that usually, there are plenty of people who know which screw to tighten.

Recently, looking at the salaries of CEOs of large companies (especially American ones), I wondered why an individual can command a mega-salary in excess of a million euros, plus share-based compensation and other benefits amounting to several multiples of that staggering salary.

I wondered: how can one prove that a person can generate that amount of money?

It has been proven that the influence of replacing a leader on the achievement of results is much smaller than people believe. Often, it cannot even be proven because external or internal structural factors may be greater than the leader’s influence. Therefore, why can someone earn such sums?

I considered the theories above, but ultimately the only things that justify those salaries are:

1) The greed to be able to negotiate at those levels

2) The tax rate that rewards being greedy.

Don’t get me wrong, I’d do the same if I could negotiate and earn more. It’s not a criticism, it’s simply a fact.

To support my argument in favour of greed, the highest-paid CEOs are in the US. However, in many cases, the results do not prove that their performance is better than that of Asian or European CEOs with considerably lower salaries.

To add to my point regarding greedy taxes, many people are unaware that in the 1960s, the US had tax rates on the highest income brackets exceeding 80%, whereas since the 1980s, they have hovered around 30–35% or so. Interestingly, mega-salaries in the US have skyrocketed since the 1980s when these tax rates were ‘liberalised’. Coincidence?

If we set aside the mega-salaries of the very few, the majority of the working class are on a different level of pay and pay rises tend to be more modest.

As a boss, as a general rule, I recall that, in salary negotiations, those who in my opinion deserved it most were the ones who argued the least for a pay rise, or were the ones who cared the least about the pay rise. The people who deserved the rise most were usually those for whom their work was more than just a salary; it was what they genuinely enjoyed doing and was part of their motivation.

Then there were the others, who would argue with you and make a thousand different cases for their pay rise. Sometimes with good arguments, and other times they honestly made you want to politely tell them to go and fry peppers (a Spanish expression which, given the context, is understood by the literal translation).

As a manager, the issue of salary negotiations is always complicated. Usually your budget is more limited than what you’d like to offer (unless you’re a tyrant with your team) and at the same time, you’re likely to be constrained within your company by a host of processes (company results, performance reviews, end-of-year reviews, OKRs…) which, in theory, are designed to give the impression that there’s a structure and logic to salaries… but which, in my opinion, make no sense at all.

Within a team, it’s important to strike a balance regarding team salaries. But can that balance be achieved? In my opinion, this balance will never be perfect, but it can make a certain amount of sense to the team lead. On the one hand, salaries should be at market level (this is a hygiene factor). If you’re constantly hiring for those roles, you should have a good idea of the market rate for the people you have. If people are leaving your team, you can also gain an understanding of what the market pays. And, on the other hand, within a team there are people who stand out compared to their colleagues. In other words, it’s normal for there to be variations.

I’ve said there may be a ‘logic’ to it, but your logic will never be shared by the individuals in your team, because each of us tends to overestimate our successes and downplay other´s performances. I’ve never met anyone who thinks they’re below the average of their team. We all think we’re smarter than we actually are.

So my advice is that you try to find out about market salaries to see if your pay is in line with what you’re earning. If your performance over the year was good and your pay is below par, I think you have a solid case for negotiating.

If what you’re after is making money quickly, the best thing is to change companies, but be very careful with this move. Firstly, moving companies just for the money isn’t the best thing you can do, unless you’re genuinely undervalued and see no sign of your employer rectifying the situation.

Ultimately, your work has to fulfil three aspects:

1) Your mind. You need to challenge yourself and step out of your comfort zone

2) Your heart. Your ideology, values and beliefs must align with what the company does and its values, and you must get on with and feel at home among the people and team you work with

3) Your wallet. You must be remunerated ‘fairly’

If you change jobs solely for the money, you might get 10–20% (?) more at another company, but in your professional career (spanning several decades), this is a short-term gain with long-term consequences. If your new colleagues, team or, above all, boss are not as good as or better than what you had before… that 10–20% might not be worth it. Furthermore, the new company will pay you for your knowledge, and this will potentially delay your opportunities for development.

How much can you negotiate your salary? It’s hard to say; it depends on the type of job, the timing, the country and the need. In IT, you can find programmers who write code worth more than four or five mediocre programmers put together. In that sort of profession, it makes sense to pay a fortune for the right person. In certain countries, you’ll earn more because the cost of living is higher. At certain times, there may be a shortage of people with your skills, making you a highly sought-after candidate…

In my opinion, more important than the salary is always the nature of the work, your responsibilities, what the role actually entails, what you learn, and the team you work with. Salary will come