The Appeasement Trap

To make his company more bolt-resistant, Peterson recently acquired another company -- a dot-com, of course -- with the intent of giving his employees more fast-track opportunities and his company more of a new-economy cachet. That's a strategy that a lot of employee-hungry CEOs are considering, including Tony Coretto of PNT Marketing Services Inc., an 11-person marketing-database-development company in Valhalla, N.Y. Coretto is currently talking to investors for help with moving certain company products onto the Web. He hopes to eventually leverage his off-line expertise into an online shop and thereby attract that desirable talent pool. "You've got to tailor your offering to how you can provide it," he says. "It also happens to be where the work is."

Some companies don't have the option of becoming a dot-com. (And some may not want to, given recent market developments in that sector.) But even the most classic of brick-and-mortar businesses are feeling the dot-com pinch. Bill Palmer is CEO of Commercial Casework, a cabinetmaking business in Fremont, Calif. "In the Bay area, there's so much opportunity in building out for the dot-coms," he says. "But I can't find the skilled workers I need to take full advantage of it."

Palmer says that even the people he can find are hard to deal with, because they know that they're in the driver's seat. "They've got leverage, and they're going to use it," he says. "Maybe they're not asking about stock options, but they're definitely more savvy about salaries and bonus plans."

It's easy to give in to the temptation to give recruits everything they ask for and to fall deeper into the appeasement trap out of sheer desperation. Tony Coretto once recruited an entry-level programmer at a salary of around $40,000. He even sweetened the deal with a $5,000 signing bonus. "The guy wound up leaving within four months anyway," says Coretto. "To his credit, though, he did give me back the bonus." Coretto says the guy left for a job that provided more benefits, including education reimbursement for the employee's wife. "I'm too small to afford that," says Coretto, "and I don't want to set the precedent of keeping up with every single thing another company offers. Those are hard dollar costs that rarely pay off."

Coretto has discovered empirically what the pundits have been saying for years: throwing money at people doesn't work. According to John J. Clancy, professor at Washington University in St. Louis and author of The Old Dispensation: Loyalty in Business (Fairleigh Dickinson University Press, 1999), "The two most primitive ways to motivate people are threats and bribery. And neither works very well in the long run."

Do employees today want too much? Sorry, that's the wrong question. You might as well ask if it's wrong for Jim Carrey to get $20 million per movie or for Kevin Garnett of the Minnesota Timberwolves to have a $121-million contract. In cold, hard terms, the answer is no, not if the market will bear it. "Employees are asking for as much as they can get, and in a free market there's no reason to fault them for that," says Peter Cappelli, a professor at the Wharton School, and author of The New Deal at Work (Harvard Business School Press, 1999). "The more interesting question is, Are employers paying more for people than they should?"

Because the game of appeasement is one you'll lose. The sad irony of the appeasement trap is that the companies that fall into it by continually upping the monetary ante succeed in attracting only the people most likely to leave at the first sign of a better deal.

"There's so much opportunity, but I can't find the skilled workers I need."

It's easy to blame the current hiring scramble on the record-breaking bullish economy and the attendant Internet gold rush. But there's a bit more to it than that. What we're witnessing, observers say, is a fundamental shift in the nature of the employment relationship -- at the employers' expense.

According to Allan A. Kennedy, author of The End of Shareholder Value (Perseus, 2000), there have certainly been plenty of times since the Industrial Revolution that employers have had the upper hand. "For centuries employees have been relatively helpless pawns in the job market," he writes. "That formula is changing. ... Finally, the employee gets to call the shots. Employers beware."

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