← At Work with The Ready
At Work with The Ready
45, Part 1. Why Pay Will Never Feel Fair At Work (And It's Not The Money)
00:47:49
Rodney and Sam explore why comp tries to solve everything—belonging, value, status—and fails at all of it.
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- [00:02]
A
Various skill sets will come in and out of vogue and in and out of favor, and the economy is such that you can't falsely control, that you can't just be like, well, a recruiter is worth 300 grand. Is worth 300 grand. If. If. Like, they're just not. Hey, everybody. Welcome back to Outwork with the Ready. I'm Rodney Evans and that guy is Sam Sperlin.
- [00:23]
B
Hello. I've decided to go with what the script actually says today. Just reading. Today I'm reading the script, and that
- [00:31]
A
should make for an interesting episode.
- [00:33]
B
Get in, get out. Let's go.
- [00:35]
A
Okay, got it. AI is rewriting the rules of work in this moment. The future of work is here. It's happening now, and it is time for you to adapt or potentially be left behind.
- [00:47]
B
Work design no longer optional, and the teams that treat it like a side project are actively being left behind. The ones that treat it as essential will keep up with the pace of change.
- [00:57]
A
Today we are digging into compensation. And, you know, we haven't really done an epon comp in a really, really long time. Not since a mini episode during the pandemic. And actually, I think with the fever pitch around AI and job loss and economic instability, it's a really good time to talk about what is up with compensation. I find this to be basically, like, the gnarliest, messiest, most borked part of any company. And so I'm super excited to do some, like, myth busting and also have some nuanced conversation in the comp domain today. But before we do, we have to check in, because we always check in, Sam.
- [01:40]
B
We do. I have a completely relevant check in question for us today. What's the best animal you've seen recently?
- [01:50]
A
Oh, I love it. Um, so, y', all, I just got back from safari in Kenya. My husband and I went with a small group of people who included, actually a former client of ours. And it was just insane and, like, so wonderful, I'm gonna say, because it was the most surprisingly best animal. I was thoroughly delighted by the hyena, so I thought I was gonna be like, oh, my God. Elephants and rhinos, and then they're cool. Giraffes are cool. Fucking lions are dope, you guys. Hyenas, especially baby hyenas, look like little fuzzy bear dogs. And they have these really big, deep set eyes, and they have, like, round ears like a bear. And they just, like, lay in mud puddles and be really cute. And I wanted one for my house real bad.
- [02:43]
B
Would be pretty amazing if you had little Hyena walking around in the background of your video.
- [02:48]
A
Feel like Rosie and a hyena would be fine. I think it would be a vibe. Yeah, probably. Best friends. Sam, what's the best animal you've seen recently? Is this gonna be some sort of Charlotte's Web situation?
- [03:01]
B
I obviously have a answer because I haven't been on safari. This was a question for you. Thank you. I mean, I hit a raccoon with my car the other day. No, it wasn't really the best animal. It was absolutely not my fault. It came out of nowhere.
- [03:17]
A
The best animal is a raccoon you
- [03:18]
B
hit with your nose. No, I'm just. I'm just verbalizing my brainstorm at the moment.
- [03:25]
A
Got it. Good.
- [03:27]
B
There's a deer that walks around our apartment complex, and it comes out at the same time every night and kind of follows the same path. And it kind of intersects with my daily walk that I generally do. So we kind of see each other and we nod, and it's very uninterested in me. Doesn't run away and just lets me, like, walk right by. So probably that deer.
- [03:47]
A
I love how you make friends with random wildlife and really get to know their patterns. That's great. What? Does the deer have a name?
- [03:56]
B
Surprisingly, no.
- [03:58]
A
Sam, are you okay?
- [04:00]
B
Name him. I'll ask him the next time I see him.
- [04:02]
A
Okay. Find out, please, and report back on the deer, Sam.
- [04:05]
B
I will.
- [04:06]
A
Okay.
- [04:07]
B
All right. Compensation today.
- [04:10]
A
Compensation. Here's the pattern. This is sort of a macro pattern, but, you know, we like to talk about self reinforcing loops on this show to get started. And here's how I'm going to summarize this. The pattern around compensation that I see is that it is intended to solve dissatisfaction, myriad kinds of dissatisfaction. But every time a compensation lever is pulled, it actually increases expectations, which. Which creates new dissatisfaction. And so we get into this loop around comp where it's never right and it's never enough and it's too centered in the story of work.
- [04:56]
B
Yeah, I see that. In some ways, I feel like that's just like the human condition, like the hedonic treadmill, but applied to organizations.
- [05:04]
A
So I think we should just start there because I also wrote down the hedonic treadmill. So it's interesting that that's where it started.
- [05:13]
B
Sorry.
- [05:14]
A
No, no, no. I'm psyched. Tell me, like, why that occurs to you, because I think this is actually at the crux. We're going to talk about some organizational stuff. But so much around comp is actually very personal. So talk about, like, why that sparked for you.
- [05:29]
B
I mean, that, that pattern, it just feels very analogous to the experience of, you know, your quality of life going up and what used to be like a new fun thing just becomes what you are used to and for like the next level thing. And then you get that, and then it just becomes normal again. There's something, it seems like there's something quite genetic. Maybe not genetic, maybe it's cultural, but there's something about the acquisitiveness of our brains that just unless you are very conscious about subverting this and seeing this pattern for yourself and choosing a different path, it is the status quo kind of least effort sort of pattern that I think everybody generally falls in.
- [06:14]
A
I completely agree with you. And I think you've started with something that is so essential to this conversation, which is that capitalist systems teach us that we should expect increases in our compensation and that our lifestyle should increase to meet that new level. And I think that just as a foundational assumption is deeply and profoundly flawed, and I don't see nearly enough people investigating what is actually enough for them, they get into this trap of what the next novelty, luxury step increment is and they lose sight of the fact that that is a losing and infinite game. And you'll never feel like it's enough if you are in this mindset. Like, I know people who make seven and eight figures and don't feel like it's enough. Like, if you are looking externally, the only end to this game is internal resolution around what enough means.
- [07:28]
B
Totally. And two things that I'm pretty sure you're not saying, but I'll just verbalize them. For the potentially angry listener, one is, you're not saying this is separate from inflation. Nobody wants to see their buying power go down over time. So of course. And then the second thing is, is that we are also, we are assuming a level of compensation that already kind of takes care of basics and gives you some margin for being able to like, handle exigencies and emergencies that emerge in your life. We're not saying be happy with how little you make and just deal with it.
- [08:07]
A
Definitely not. It's a really good clarification. And I think that even with that being said, like, I see people who are at a level that is unquestionably sort of objectively stable, totally, compared to what 99% of Americans have. And they are still in a scarcity mindset that's like, what if I lose it all tomorrow? And it's like, bro, you're sitting on 10 or $12 million, like you could lose it. Anybody could lose it. I guess catastrophes happen. And to your point, there is a level and like, I assume, you know, Sam, I did not enter the workforce with a cushion. I entered the workforce with student debt and a low salary, living in Manhattan. And there's a climb between there and comfort that is real and where I would have done like basically anything for money because I was just like, I'm one cavity away from like not being able to pay my rent. But I think the work that I'm proposing and that I want us to investigate is people who have reached that plateau where like they're not living paycheck to paycheck, they do have the stability that you're referencing and they're still in the motion of it's just more, more and as much more as I can have.
- [09:31]
B
Totally. Well, and I think to kind of connect this to the idea of how compensation shows up in an organization. I think a lot of organizations, compensation is incredibly opaque. It is hard to understand. It is not really rooted in any sort of principles. So in the absence of all of that, the only thing that we have to go off of is this basic idea that is drilled into most of us in capitalist societies, that more is better. So if I don't understand how we set compensation in this organization and I don't understand what my colleagues make, and I have a vague sense maybe that I'm making less than I should be, then I am going to feel like I don't have enough and I'm going to push to get more. Because what else am I, how else am I supposed to kind of show up and make decisions about my comp?
- [10:16]
A
I think that's right. And I think that the comp conversation also goes to how avoidant most organizational culture is. And comp becomes this proxy for belonging, validation, performance, all of these things. Like it's trying to do all of these jobs, so it does none of these jobs. So when I'm someone who's working in a large company and I see this even at the executive level of companies and I'm like, I, I don't really know if I'm doing a great job. Like I don't really know if the CEO actually thinks that I'm invaluable, high performing, blah, blah, blah, for a lot of folks the only date because they believe that feedback is bullshit. Because it mostly is and it's mostly way too positive. And in most organizations there's no incentive to be honest. People just like, look at this one metric and are like, that's the story. The whole story is the money story. And so now my self worth, my meaning, my assumption of my own contribution is related to this one fucking thing that is probably taken out of context is very much not nuanced. Like it's such a blunt instrument. And so I think to your point, like it's problematic sort of like from every direction.
- [11:34]
B
Yeah, I can't think of another part of an organizational operating system that is so overlapping with human psychology. And you know, I mean, like, I would say like mastery, but mastery is part of compensation, or at least it should be. I would argue, you know, membership. Like you could kind of group them all into the compensation bucket. And there's so much around our identity and feeling whether or not you belong in a place or whether you're being valued and stuff to do with your ego that is all wrapped up in the compensation conversation. And I think, I mean, I even noticed it myself when you pitched this idea. I was like, I don't want to talk about compensation. Like I don't find myself lit up talking about compensation generally. And I think it's because it is so it should be nuanced and it's not. And it's so integrated with just like difficult psychological stuff.
- [12:26]
A
It really is. And I think that your reaction is a very typical reaction, like nobody really wants to dig into this because there are so many tripwires in the compensation space. And I don't want to get into solutioning, but I do think that part of the reason is because it is a very complicated solution to a complex problem. Like the problem of human psychology is a complex problem. And every person is coming to the table of compensation with their own upbringing, their own trauma, their own money stories like their own. Everybody has stuff about money, Nobody doesn't have stuff about money. Whether you grew up rich or poor, like it doesn't matter. Everybody's got shit about money. And then we have this very antiseptic answer to what is a rich and nuanced problem set.
- [13:24]
B
Yeah, one more kind of thing that just kind of popped into our brain kind of half formed. So we'll see if I can articulate it. The compensation conversation to humans is everything you just said. It's so subjective and wrapped up in our stories and our egos, identity, all sorts of things. And the compensation, or maybe just broadening it to kind of the financial conversation for a company is actually can be quite objective and quite cut or dry. Like we need money to run. This is the amount of Money. We can see it on a spreadsheet. It's very cut and dry, like, no emotion about it. This is how much we spend every month. You can look at it spreadsheet wise. So uniting these two completely different sides of the coin, I guess. No wonder it is always kind of messy and often quite unsatisfying to work on and to talk about.
- [14:16]
A
I think you're nailing like what is essentially broken, which is that, like, the organizational lens and the individual experience are never going to square. And so then you end up with a bunch of like, comms shenanigans to try to make a story that makes sense to people. People, which generally only makes it worse. So let's go from the individual lens first and then I'm going to ask you some questions about the org side. But what do you think people should be paid for? Like, how should compensation be determined by an organization at the individual level?
- [14:58]
B
See, and that's such a simple question, right? That I feel like it should have an answer, like, just like a simple answer. And because I'm sitting here being like, oh my God, like, all right, I don't. And also I don't want to put my foot in my mouth. That's going to be awkward. I mean, at the end of the day, if people are doing similar work and providing similar value to the organization, and I am absolutely skating right by how we define value. But there is something about the value that you are able to produce as a member of this organization is what you should be compensated on. And that is absolutely setting aside that almost nobody creates value individually. So really, individual versus team is something I think we're going to be talking a lot about people kind of closer to the edge of the organization or closer to kind of where revenue is generated. It's easier for them to make the case about how they generate value. Whereas folks who are in more of a kind of shared service sort of role have a harder time of articulating that. But I would argue are just as important for anyone else. I've immediately talked myself into a knot that I feel like I need to like, get in front of a whiteboard and like, start figuring stuff out. Save me. Are there. Is there a simpler answer?
- [16:14]
A
Save me. Save me. Well, it's dissatisfying answers. Only today I do think that compensation related to value chain makes sense. So like, we're going to take the humanity out of it for a second here and say a business makes a certain amount of money. The people who are in that business contribute to making that Money. There is some way to figure out how much to value that contribution at in order to make that money. Now, what that ignores is any externality, like market value. It basically only looks at value chain of an organization and affordability. I think that's one very straightforward way to look at compensation. It brings up the challenges that you name. Like, you know, does the rainmaker make more than the operations person? I think those are solvable challenges. But there is a large and fundamental question of, do we pay peg to market? Do we pay peg to our business model? Do we just pay based on what we can afford? Like, what are sort of like the first principles for how we decide how to pay people here?
- [17:27]
B
Right. Well, and assuming a functional labor market, kind of pegging to market, and you can choose like, you know, 50%, 75%, whatever, you know, maybe under market, but because we have other things going for us. That in my, like, very logical brain is like, well, obviously you pegged to that because that people will leave if you peg to not that. Or people have the option of going and doing something else if you're completely divorced from what the labor market will actually pay for a particular role.
- [17:59]
A
I think so. You know, I am a fan of having market data, and I think that it can be, like, overly simplified to be like, well, you make the same amount of money at that consulting firm as you make at the ready, but you have a utilization target, a revenue target. You travel 80% of the time. People are mean, and they lay off 20% of their staff every six months. Like, maybe not potato, potato, you know. But I do think that some evaluation of what the market will bear for this kind of role is worth doing. So I think the ideal sort of recipe is like, value chain to determine affordability, some kind of market value that tells us what the replacement cost would be for this role if we lost someone. And then some lens of fairness. So something that's like this level gets paid this. My basic take on comp is make it as simple as possible. In a perfect world, it just doesn't come up.
- [19:03]
B
Yeah.
- [19:03]
A
Which is like a probably, like, controversial take for a lot of people listening who are invested in complicated compensation structures and believe that they actually do something. But I'm like, the best comp is actually invisible comp, where people just make their money and shut the fuck up. Honestly, that's the best way that I've ever seen it. And the more complicated it gets and the more it's tied to, like, revenue or goals or, you know, it's a portfolio of A hundred different kinds of compensation instruments, the more it becomes at the forefront of people's minds. And I'm just like, what's the comp design that makes everybody forget about this and focus on their work?
- [19:44]
B
Yeah. And in that situation where you have this incredibly complicated comp system, you are also making this assumption that. That everything that we need in support of that is valid and works well. The goals that we are setting and reviewing and our performance management is great. Like, see all previous episodes we've done. You need an operating system that is probably unrealistically functional to do an incredibly complicated compensation scheme.
- [20:12]
A
That's such a good point, Sam. It's like, that does really assume that, like, a lot of other things are working perfectly. Like, think how dialed the authority field has to be for you to actually exercise your autonomy fully in a system and therefore earn what you like. It's just. It's never that dialed. So make it super, super simple, I think, is the move.
- [20:36]
B
Yeah.
- [20:37]
A
One of the things that I wanted to talk to you about is sort of this idea. And I would just, like, invite both of us to talk from our own lenses. Not necessarily comp philosophy, but I do think that people who stick around systems, generally speaking, feel like they are increasing their mastery. They are, like, undoubtedly increasing their level of experience just by continuing to exist and do shit. And therefore they want to make more money. And I think the hard thing is there's this, like, dissonance between personal growth and the actual availability of dollars. I use myself as an example. It's. I'm a much, much, much better consultant now, having stewarded the ready for the last three years than I was five years ago. We charge the same amount of money for me working with clients as we did five years ago. I think that I should make more money than I did five years ago, but I don't because we can't afford to do that now. Could we change our pricing? Could we do things? Of course, there's always levers to pull. But I'm pointing to a fundamental human experience, which is I've been in this job learning more, getting better, fogging a fucking mirror every day. And I'm not seeing a real significant shift in what I'm earning unless I leave.
- [22:02]
B
Yeah.
- [22:03]
A
How do you think about that? What do you do about that?
- [22:07]
B
Well, where my head was going is that in large organizations that don't really have any sort of commitment to any sort of transparency, let alone any kind of pay transparency or how finances actually work, the stories that you can tell yourself about how finances actually work in the organization could be such that, like, there's a ton of money floating around and it's just an active choice from leadership to not pay me more, even though I'm getting better every year. The money's there, but they're just not letting me have it versus what you describe. Because you are intimately familiar with the Ready's finances, as is everybody else who works at the ready.
- [22:46]
A
Right.
- [22:46]
B
We can have a much more nuanced conversation about how our business model works and how much just available cash there is to allocate toward compensation. That doesn't 100% assuage those feelings that may come up for people, but I feel like we can have much more adult and like, normal conversations about how compensation works because we all really understand how the financial model works. And it's not that we have this like, big bucket of money that nobody gets to touch, but it's like, because of how we pay and how we deploy and like, and how we charge, like, this is what we have and this is the best system that we have for allocating that across us.
- [23:23]
A
Yeah. And I do think transparency is such a good place to start. I see so few companies that are fully, fully pay transparent. You know, like, a lot of HR people tell me that they have paid transparency, but what they have is like bands that are public with huge ranges, where it's like, oh, if you're at a level four, you could be paid somewhere between 125 and 350,000 total comp. And it's like, that's not patent transparency.
- [23:49]
B
That's the impulse. Maybe if the bands were a little bit more narrow, like, that could be a useful amount of trans. At least more than zero. But more than zero bands are basically, you know, 100k, 200k. Like, what are we actually.
- [24:04]
A
What are we actually telegraphing?
- [24:06]
B
Yeah.
- [24:06]
A
And I feel like part of my argument for full pay transparency, I'm just like, you should be able to go at any company at any scale. I should be able to see what anyone makes, including the executives. I'm just like, this is how you demystify and start to take the charge out of something. That's difficult. Whenever I'm doing org design work at the ready or with a client, and there's like a really gnarly challenge around metrics or whatever. I'm like, before we do anything, let's just start looking at the data. Like, let's look at the data together as a group and really start to understand it for three months before we do anything about it because I can go on Glassdoor and see what someone like me makes at another company. It's just the worst kind of transparency because I'm missing context and I can peg myself to the person who's making the most. And like, it's the worst kind of transparency because it's like scattered data points. The people who tend to share their information tend to be the highest and lowest paid people. Like, it's just very problematic. So I'm like, start with full pay transparency, come what may. What do you think about that? Because I feel like a bunch of people just fully clenched up when I said that.
- [25:26]
B
I think I agree on a conceptual and principles level. I wonder what other kind of prerequisites either need to be in place or kind of prep work needs to happen so that people can have conversations that are going to come out of this in a productive, good way. If your organization has no muscles built around having difficult conversations, money or otherwise, and then you plop a bunch of evidence of pretty gross injustice in your organization, I think be prepared for the swirl that's probably going to come out of that. And maybe by be prepare I mean have some venues like ready to go where we can talk about these things and they're facilitated and there are places to have these conversations so that it's not just the DM network just lights up like crazy as soon as that information comes out.
- [26:21]
A
I think that's right. And I think for any company that decides to do this, it's also probably a really good forcing function to deal with like the skeletons in your closet. It's like if you aim to do this by the end of 2026, you've got yourself a year for comp rationalization and to get yourselves into a position that's not just embarrassing to share with your employee population.
- [26:44]
B
Only do it if you've got, if you've got some kind of money in reserve to bump people up as opposed to potentially the other way around. Like if there are people who are massively underpaid compared to their colleagues, I think you're better off, all else being equal, bumping them up. Thank you. Trying to bump people down, like going down on comp is a very difficult thing to do. Whereas bumping people who are being underpaid up is like, some people are very happy and the rest are kind of
- [27:12]
A
just like, eh, I agree with you. You know, again, I would do the work to get it right or 80% right before you, you know, raise the curtain. And my provocation is like, comp should go up and down. Actually our sort of idea again, because we're socialized to this thought that like, work is a ladder and the money increases with every rung that we climb. I don't think takes the broader environment into consideration. I think that people would be generally happier and comp would function better if, if we could admit to ourselves that our skills may be more and less valuable at different times, depending on what the market is doing. And I understand the practicalities of like, people design their life for a certain level of compensation and assume that it's not going to go down. But I also would argue that like, people lose their jobs all the time and don't have any compensation and then accept lower compensation when they do get something. And so like, I just feel like it's one of those like, false but very bought into myths that comp can't and shouldn't go down because the reality is it does all the time, just not within companies.
- [28:36]
B
Yeah, that's a good point. I was getting ready to fight you on the like, life design stuff in
- [28:40]
A
the sense of like, I bought a giraffe last week. I didn't really. I just fed it and tried to pet it.
- [28:44]
B
Yeah, I mean, I'll take, I'll take you. If you want to feed me too, like, that's fine. So what I was going to fight you on was just there's so many of our systems outside of work that assume, you know, a steady income. Like I'm thinking like mortgages and stuff. Like the bank's like, oh, you make this amount of money, therefore you can have like this amount of mortgage. And like, we know at least you're not going to go down from there unless you lose your job, to your point, which is a very real thing, especially nowadays and especially for tech workers. So I think that the idea that we essentially hide the fact that roles can get paid less by the fact that people get laid off and have to go elsewhere and make less money is actually, I think a good point. I'm trying to picture the organization where like that could actually happen, where like certain roles like base pay was actually going down and not just like, you didn't get your, your bonus this year, which I think is a similar thing that is more, that is more straightforward to like be variable in, in that way. But I'm not saying it's. It's probably not impossible. It's just hard to picture.
- [29:45]
A
Yeah. And it's like you could have basically UBI inside of a company and have people base their W2 and their mortgages, et cetera. On that understanding that like the rest of it might be spiky. And it's like you look at some roles in talent acquisition that were just super, super hot during the pandemic during the last big tech boom, like when the faang companies were just like in a hiring fever. And those people are making stupid amounts of money, like getting paid more than engineers to recruit engineers, like nice work if you can get it. That is no longer what's happening right now. And now that we're seeing companies that are like reallocating a bunch of their budget around a function like that to hiring, you know, AI leaders for 700 grand, people feel away about that. And I understand that, but also that's, I just think that's inevitable. Various skill sets will come in and out of vogue and in and out of favor, and the economy is such that you can't falsely control that you can't just be like, well, a recruiter is worth 300 grand, is worth 300 grand if, if like they're just not.
- [31:00]
B
Yeah. And it just fights with the, our psychology around kind of like loss aversion. And you know, once we have something, the difference between somebody saying you can't have something you never have versus taking away something that you did have is like night and day. So I, I, I get why it feels bad.
- [31:17]
A
It feels way worse. And I think in some ways it probably feels worse than a layoff, but like, it's not actually.
- [31:25]
B
Yeah.
- [31:25]
A
Okay, so we've talked a lot about how individual compensation works and how companies think about it ver how humans think about it and why that's totally borked. One thing we don't see a lot of out in the world is team rewards that are actually team. Like we see a real individualistic design approach to compensation in the vast, vast, vast majority of cases. What do you think about that? What do you think about individual incentives? And I think here we're going probably beyond base salary into incentive comp.
- [32:02]
B
Well, I think it's, we've all been scarred from group projects in school. I think that, I think this is what it is. I think the idea that your compensation is going to be tied to other people other than yourself, unless you just work with all stars and you love all your co workers and think they're the best and you think the way your organization works is super functional and great and you know, everything kind of pulling in the same direction. I think a lot of people here, wait, my variable comp is going to be tied to some sort of team thing. My team is brutal. There's like, three people who I don't even know what they do. They're garbage. The larger organization that I have to work in is nonsensical in a lot of ways, and I'm supposed to trust that we're able to get things done. Like, all of this sounds horrible. At least I control my own effort and, like, how I show up in all of this difficulty. Let me just focus on that, please. And I think that's totally rational, totally reasonable. And I think, still, I would want to be seeing more and more and understanding that no individual or very few individuals can actually create value in their organizations by themselves. And let's stop pretending that they can and compensating as they can and do the hard work of figuring out what it looks like to compensate teams that work together really well and actually can produce a lot of value for us.
- [33:25]
A
Yeah, I think that's right. This is a place where individual incentives are a byproduct of just how difficult it is to get comp right. Like, it's much cleaner to just be like, okay, your base salary is this, and if you don't completely fuck it up, Your bonus is 50% of that amount at the end of this year. Like, it's easier to show boards. Like, these were the boxes to be checked in order to fund this bonus pool. Those boxes were shot. Like, it's just cleaner. Totally.
- [33:56]
B
Most of us are working on, like, three different teams and, like, which team is contributing to my bonus? Yeah, yeah.
- [34:04]
A
It just gets really messy, which sort of leads me to, like, should we have incentive comp?
- [34:09]
B
I think we should add the level of profit sharing, basically. I think if the organization does well, then we have a way to share that with folks, and we can have whatever kind of, like, formula that we decide that we want to use to decide how much that is and who gets it's what. And maybe that's even a way for people to kind of contribute their ideas to that and feel like they have some skin in the game. That, to me, seems so much simpler. And I think we're kind of setting aside probably, like, sales roles where, like, I don't know, that those feel, like, potentially a little bit different to me, but profit share is, like, where I would at least start and kind of decide whether or not we can make that work before we start getting even more specific.
- [34:53]
A
I love that. I think sales is such a gnarly category within this, because sales comp is just completely its own beast. And I Think nowhere are incentives more perverse than in sales because so often in order for someone to get paid truly like their living wage, they have to do really weird shit that does not ultimately benefit the customer. That is like deeply internally competitive, that puts other functions on the hook to like, deliver things they can't. Like, sales is a wild west and anyone will say to you like, you're never going to hire a great salesperson if there aren't individual incentives and there isn't a massive upside. And while I that squares with what I've seen in the world, I don't think it's good. Like, I don't think it works well. And I would love to see more organizations orient to something like ubi, something like internal market value and upside being profit sharing, which does not have to be peanut butter profit sharing. You can take a different approach to it based on value creation. But I think you're right. Like, I just think it gets weird really fast and it gets overcomplicated really fast.
- [36:03]
B
Yeah. And this is probably a conversation for another day, but I think I'm becoming more skeptical of the idea of individual rainmakers. I would be curious to kind of run the experiment of like, we have a sales group that has a couple of rainmakers and then a bunch of like normal average sales folks and they don't really work together all that well versus like a sales team that is all maybe like slightly above average and is actually a pretty cohesive team that is able to like pursue stuff together and make each other better. I'd be curious to know like, which one is actually more effective. And I think in that latter you could do more interesting kind of shared comp across that sales team than the more traditional, you know, eat what you kill sort of thing.
- [36:48]
A
Yeah, I agree with you. I also think this goes to another like, bit of human psychology which is like, we're all the heroes in our own story and in a situation like sales and like I do a fair amount of selling, like we all think that our part is the most important part. Like I think my part, which is usually like having a long term relationship and staying in touch with clients for years or decades. Like of course I think that that's the most important part. But is that really more important than the part where like someone else at the ready actually gets the meeting scheduled and gets us through procurement and writes a statement of work and gets it signed and gets it staffed? Like, like it's not really more important because just my part doesn't lead to actual revenue and just Their part doesn't lead to actual revenue. It actually is a team sport.
- [37:41]
B
Totally. And you could even go like a layer deeper. You know, the teammate that never even sees a client but has done the design work on the, on the stuff that we show the client or the team that made that kind of like make sure the knowledge stuff is like organized and like easy to find. So the person writing that proposal can do it in like 30 minutes rather than three days. Like, it's all, it's all a complex system. Rodney, I don't know if you're familiar with this idea.
- [38:04]
A
Have you. Could you explain that to me? Right. It's like we have like some really cool AI workflows now that automate huge parts of. Of our sales process. Like someone had already made those.
- [38:14]
B
Yeah.
- [38:14]
A
Are they part of it? Yeah. Blah, blah, blah. It gets complicated.
- [38:17]
B
Are you saying now that our AI teammates can. Are now in our profit share? Rodney, there's an existential philosophical question for you.
- [38:25]
A
Not just yet. I would not say not just yet. The other thing I wanted to ask you about in terms of like comp tools, you've worked with a lot of executive teams. What do you think about equity? Good, bad, mixed bag?
- [38:43]
B
What's your experience? Mixed bag in all the things. I think it's easy to see the happy path with equity. You get equity, you have more skin in the game. You're going to do things to make that equity more valuable. I think the reality of that is there is a difference between doing things that are good for the long term health of the organization and doing things to make your equity go up. And they're not always. That Venn diagram is not a perfect circle. And to the extent that you feel incentivized to do things that will make your equity short term valuable or whenever your cliff, your vesting cliff is valuable, I think that can create some pretty bad behavior inside of executive teams and inside of organizations.
- [39:33]
A
Yeah, I think it's almost always bad.
- [39:37]
B
Yeah. Why? Why is that?
- [39:39]
A
I mean, for the reasons that you said. Absolutely. But on the other, actually from the other side, it's just as bad, which is where an executive's equity is worth less than it was at a different point in history. And they're sticking around because they want to see it go back up or because they traded off a bunch of cash to take this job and have an ownership stake and now they have this like sunk cost fallacy in their mind and they thought that they were going to create like generational wealth with this gig. And now it's looking like they just got paid like 300 grand a year for five years and that's going to be it. Like. And then they stay, but they're mad and they don't actually know what to do to increase the value of the organization. But they don't want to just leave it because they, because fomo like, like I'm not sure that individuals owning companies ultimately while they're working inside of those companies is ultimately great design. I think it's really difficult to be someone who is like an owner and basically an investor because you're investing like rather than taking cash, you're basically like investing that cash in the ownership of the company and an employee or a consumer of that organization at the same time. I think it's really difficult and you know, this is more pronounced at the top of the house. I think it's really difficult to wear all of those hats at once effectively.
- [41:08]
B
Yeah, I can definitely see that. What's the alternative? Because it feels like obviously a startup kind of mentality, like, all right, I'm going to get some equity and then after this thing pops like it'll all be worth it. I'm realizing is the alternative like an employee owned trust perhaps?
- [41:24]
A
I mean, sure, we do love an EOT here. The thing that I love about and the reason that the ready is an EOT now is because it alleviates the need for an ownership structure that is ultimately there's a lot of problems with ownership structures. One of the main problems is that you have to figure it out before like too early. You have to make a lot of decisions. Yeah. And then you have to live with them as your business changes and the world changes. And it's very expensive to move equity around and it's just sort of like it's an equity structure. Ownership structures are not very flexible. Like it's very difficult to have the ownership of your company fluctuate with the external environment. And so the thing that's great about an EOT is that it prioritizes profit sharing. And you know, EOTs are like they, they say like they're naked in, naked out. Like when you work at the company you participate in the upside and when you leave the company you don't. And there are a lot of people who say like, well I could never and you'll never recruit a great executive that way and blah, blah, blah, blah, blah. But I actually think that incentivizing people to either create value while they're there or stay to enjoy the longer term value is better in many ways than Just being like this piece is mine and I want to sell it for the most money possible. And I'm not going to leave here until I feel like I can get that money. I think profit sharing is just a much more adaptable mechanism. And again, profit sharing isn't formulaic the way that a cap table is. You can say, you know, we're gonna preference the founding leadership team in our profit sharing model because they took this stake or they took less comp or they did these things. And so for five years they're gonna get the first 10% of profit right off the top. Before like you can still do things creatively. It's not, you know, it's not communism, but I do think that it's a better, more fluid mechanism for sharing wealth.
- [43:36]
B
I wonder if the macroeconomic environment changes. And basically I'm just kind of referring to the stock market. You know, for a long time the stock market has been more or less. I'm not talking about any individual company, but like, you know, index funds of very wide array of organizations have basically just gone up. And I'm not going to make any sort of economic predictions here, but I could see a period of time and there have been times in the past where the stock market just always up to the right is not a given. And I wonder if equity sort of compensation becomes less popular in that sort of environment. And now we start to see other sorts of more creative ways of doing compensation.
- [44:16]
A
You know, in the last like five years or so, I think a lot of the mythology around equity has been busted. Like I think people more and more see that the story of someone taking a lower executive based salary or leadership based salary in favor of ownership rarely turns out to be life changing money. Like it's just people anchor to the outliers that made $10 million because they were employee number 300 of a large company that went public. But that's not going to happen to most people who have totally. Most people have a bunch of worthless equity that's like under what you know, or that's like. Or that's not that significant. That's tens of thousands of dollars, not hundreds or millions of thousands of dollars.
- [45:00]
B
And that's a good reminder because even though it's easy to sit here and if you're like plugged into kind of the world at all, you could probably list 100 organizations that you know are unicorns and a huge, but totally 100 organizations out of. I mean, how many organizations start in a year? How many exist like that? We're talking less than a single percent, I'm sure. Like, that's. That's the. The lottery kind of that you're playing here.
- [45:23]
A
That's right. You know, the psychology of humans is that, like, we tend to overestimate or overweight imagined future payouts.
- [45:33]
B
Yeah.
- [45:34]
A
And we overweight sunk cost rather than being like, in those five years, I could have made $100,000 more or $50,000 more or $10,000 more in my base salary, and it would have been worth more than that. Equity ended up being worth more. Like, it's a lottery ticket. Equity is a lottery ticket, and a lot of capitalism rewards lottery ticket thinking. And I just, I don't ultimately think that that many people end up benefiting the way that they expect to, which is not to say not at all, but the way that they hope they will. Okay, Sam, we clearly have so much more to say about compensation, but rather than turning this into the longest episode of this podcast ever made, let's just hit pause and we will do a part 2. Finish it up next time.
- [46:19]
B
Yeah, let's. Let's definitely wrap it up. We're always looking for new topics for the show, so if you have an organizational pattern you're wrestling with, shoot us a note@podcasttheready.com this show is engineered by
- [46:30]
A
Taylor Marvin and produced by our friend and cello phenom Jack Van Amberg. At Work with the Ready is created by the Ready, where we help organizations around the world change the way they work. Thank you so much for listening.