In my last post on Fog Creek's 9 compensation levels (everyone in the company makes one of 9 numbers), I said that a bigger company would require more levels, which complicates the whole matter.
What about big companies that seem to defy this rule? Goldman, Sachs, for example, proudly has only about 3 titles. Google is another big company with a flat hierarchy. Both companies are hugely successful.
If a company grows but keep only a few number of levels, then it needs to offer big bonuses. Big bonuses are a back door way to differentiate compensation while maintaining a simple base structure.
Goldman, Sachs has done this for years; there aren't many promotions, but bonuses vary wildly. Google provides big bonuses through stock options.
Joel alludes to "a generous profit-sharing plan", but offers no other details. Does everyone get the same share of the profit? Or everyone at the same level? If not, are the bonus numbers still made public like the salaries? How does the size of the bonuses compare to base compensation? Answers to these questions make all the difference.
Then, the bigger question remains: what happens when profits slow down? If the company is bonus dependent, sometimes looked like an "incredible company culture" disappears along with the profits, and just as quickly. GS is about to find out; super-sized paychecks have gone the same way as trans fats at McDonald's. Google is about to find out; while they already repriced everyone's underwater options, stock market doldrums means compensation will basically be declining.
When the bonus pool runs dry, people start wanting more explicit ways to estimate their annual income, and managers need new tools to differentiate the strong from the weak. All of which means more compensation levels.
No comments:
Post a Comment