Where is it written that a 26-year-old is entitled to a six-figure salary? The rampant grade inflation at our colleges and universities, where everyone's apparently an "A" student, and where grading on a curve is just for old-fashioned curmudgeons like me, is nothing compared to the ego and compensation inflation that's all around us. Salaries always spike when there's tons of easy money chasing deals, but today the finances of too many startups are entirely out of whack with both reality and their own wherewithal.

We used to believe that the compensation you earned was correlated to the contribution you made to the business. Made, in the past tense, not what you hoped or expected to make in the future. But today, recent graduates and new employees (especially in tech) want to be paid "on the come," as they say in craps. In addition to being unbecoming and overreaching, these expectations are choking a lot of young businesses, because it appears that almost no one in management knows how to say "No" anymore. In fact, I'm not sure that any of these young CEOs even want to say no, because the high salaries being paid to the people who work for them justify their own compensation. So no one really has the guts or the motivation to slay the Golden Goose, until it's too late.    

Surprise! Even Today, Money Can Run Out

I'm afraid that if we don't take some time to review the situation, and maybe re-set some of the benchmarks, we're going to see a lot more businesses abruptly hitting the wall: the cash will run out before results start to show. You can shift your strategy and pivot like crazy if you've got the funds, but when you run out of cash they send you to the showers and then straight home with your tail between your legs.

What’s interesting to me is that this problem is pretty much restricted to new tech companies rather than established Silicon Valley businesses. In part, that's because a great deal of what used to consume early-stage funds (capital expenditures, connectivity costs, etc.) is no longer a major component of getting a new business off the ground. So there's more (theoretically) "free" cash to spend on disproportionate comp packages for management and key technical employees.

For their part, the big tech guys appear to have adopted a broad (and basically illegal) plan to deal with salary inflation, as recent allegations of collusion suggest. Most recently, a judge rejected a major settlement offer by the leading firms (about $325 million) saying that she thought it wasn't enough money for the damage done to the hundreds or thousands of employees who got screwed when these companies agreed not to poach engineers and other specialized technologists from one another.

I'm not sure how the litigation will turn out (although I know the lawyers will make a bundle), but I do understand some of the underlying motivations (not, of course, the morality or illegality) of most of these guys. It's hard enough to get and hang on to great talent, and almost impossible in the hyper-competitive and completely immoral world of the Valley, because everyone is basically chasing the same players and most of those players are chasing the next "big bucks" offer. Frankly, I'm surprised it's taken this long for this story to come out.

Company loyalty doesn’t matter much out West, and job longevity is pretty much a joke, but that doesn't mean that there isn't a big issue around compensation in Chicago (where I'm based) and every other tech-oriented big city these days. And it's causing a lot of headaches and heartaches for young entrepreneurs who are trying to build their businesses with limited capital.

I understand that in every market there's ongoing competition for talent, but there are also a lot of talented engineers and others walking around these days wondering exactly what to do with themselves. There are a lot fewer sure things than you'd imagine; not everyone's got a game-changing idea or a world-beating business, and there's not all that much appeal (or upside) to becoming employee 98,001 at Apple.

And, whether you want to acknowledge it or not, it's not a free or perfect market for talent anywhere, because a great many of us are constrained by other considerations--family demands, education requirements, location and the risks of picking up and moving across the country, etc.--and these concerns also all factor into the choices we can make.

So I think that right now it's almost as hard (however talented you may be) to find a great opportunity (one that's right for you) as it is for businesses to find the talent they need. And I'd suggest that this is a healthy kind of equilibrium that serves us all in the long run, and that should encourage all of us to try to keep our personnel costs somewhat in check.

As Jesse James might have said: It's always a better idea to rob the train first and then split up the loot. Or, as Kanye does say: "I got a problem with spending before I get it. We all self-conscious. I'm just the first to admit it."

 

 

 

 

Published on: Aug 26, 2014