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You Pay How Much?
This one’s going to be short and sweet and I’m going to get right to it. How do you go about paying your employees, your independent contractors? What I’m asking is how much do you pay them and what are the standards in which they get a raise? If you’re a one-man shop, you might want to pay attention to this because someday you might not be a one-man shop. If you’re a thousand person firm, you might want to read this. Here’s what we have learned in an exercise, partly because Kerri and I are going to Pepperdine for our executive MBA and partly because we brought in some consultants on the topic. We were shocked to find out that we thought we had standards in by annual reviews.
A rack and stack process is where everybody fights harder to be in the top nineteen of the twenty people in the division. Click To Tweet
We thought we had a decent process and come to find out our processes are so archaic. The majority of our people are Millennials and a little bit older and come to find out the expectations of what a company should be doing for their employees. Not in the matter of how much a raise should be, but in how you go about communicating a raise. How you go about setting the expectations for a raise. To make the case, I want to draw everybody’s attention to Netflix. It is the most astounding case study of how they give raises. I’ll sum it up this way. You don’t get a raise at Netflix. You don’t get a promotion at Netflix until you write a case study in which you sell management on why you should have a different position with a different title, with a higher pay rate.
Netflix found the most liberating thing they can do for their employees is allow their employees to have a voice in who they are, what they’re capable of doing. It has been so revolutionary in the growth of Netflix. What has happened is unbeknownst to Netflix when they opened up this idea. The majority of their people, their first thought was, “What can I do immediately on my own time and with my own dime to advance my education so I can advance my career inside of Netflix?” Lo and behold, guess what their people did? They went everywhere. Read online courses, watched online videos, went to executive MBA programs on their own dime. They went crazy educating themselves, even bringing in outside consultants on their own dime, on their home time to advance their career. I think we all know, Netflix has exploded.
It is number one top five movie house. Their platform was almost on the verge of bankruptcy. They lost 800,000 clients in a sixteen-week window once. This was when they had a previous pay scale. We are in the middle of revamping everything at Income Store. We look at how we pay people totally different, how we onboard them. The expectations we set of how and when or if raises take place. I want to bring to your attention that I think one of the greatest things you can do as a manager, leader of your company. Do a deep dive into the five to six major different ways companies are compensating their employees specific to how they do the annual review and how they do or do not deliver raises. I’ll also bring to mention that in the ‘80s Jack Welch became very famous.
He’s still considered one of the greatest CEOs of all time, but he enacted a rule that the bottom 5% are automatically let go at the end of the year. It was a shocking methodology to what was then a somewhat stagnant $4 billion company. To the world’s surprise, a decade later, they were a $40 billion company. One of the reasons is he did a rack and stack process where everybody fought harder to be in the top nineteen of the twenty people in the division because they knew they signed a piece of paper that said, “I’m in for this. I’m going to fight to be in the top nineteen of twenty people in my group because I know if I get racked and stacked by my peers in management as the twentieth person, I have to step down.” They not always even ended up getting fired. They had to quit. There was a lot of mindsets that go into compensation. It is a critical component of a business and I wanted to use this show to draw your attention to it. I hope this helps. Take care.