Does this sound familiar? You interview someone for a senior role and, afterwards, you look at each other and say, “How the hell was he on £150K?” Somehow, there seems to be a gulf between the candidate’s previous salary and his performance in the recruitment process.
Last week’s High Pay Commission report kicked off a number of discussions about pay and the extent to which it is based on merit. In any organisation, though, what counts as merit is defined by the people with power so, ultimately, all pay is a function of power. Merit is, therefore, a catch-all term encompassing all sorts of behaviour at work. Excellent performance in your professional specialism is important but it only gets you so far.
For many people in senior roles, a key determinant of their pay is how well they are politically positioned in their own organisations. No-one would ever admit it publicly but, in most organisations, career progression and pay rises are based as much on a person’s ability to play the power game as on their professional skills and technical abilities.
You could argue that this is a skill transferable to other organisations but that’s not true for everyone. Some managers, especially those who have been in one organisation for a long time, have political skills and knowledge that are company specific. Through years of political manoeuvering, they have become experts at working that system but often struggle when they have to work a different system.
This means that, as soon as they leave their organisations, one of their key capabilities becomes instantly obsolete. As I said when I discussed the link between people’s status and their employers’ brands, many people find that, shorn of their companies’ high-profile brands, their skills alone are not enough to enable them to command the salaries they had when they were part of a corporate machine. That’s why there are directors of business units who find they can’t hack it when their business units are hived off. Out in the big wide world, they are just not good enough to make the profits they once made as part of the branded company.
The same thing happens to people who leave organisations having been promoted and rewarded on the basis of relationships built and favours done for their bosses in the past. Once they leave, all those late nights and after-work drinks with the C-suite suddenly count for nothing.
Let’s say you have two colleagues, both with similar skills, length of service and experience. Executive A is a political animal and gets well in with all the senior people, while Executive B turns in a similar performance but doesn’t play the game. Over time, Executive A ends up with the more senior role and earns 25 percent more than Executive B.
Protected from the external market by a large organisation, competing only with those who are playing a similar political game, Executive A has reached a level of remuneration that he could not command if he were to change employer. Relative to the market, he is over-promoted and over paid. However, with typical executive hubris, he never stops to consider that a fifth of his pay is based on his political position and his relationships in one organisation. His self-serving bias convinces him that his salary is based solely on his capabilities and performance.
But, as soon as he leaves the company, the basis of 20 percent of his salary suddenly disappears. He doesn’t realise this, of course, so he keeps going for jobs at or above the level of his last one. That’s when he ends up sitting in front of you, saying he wants a salary that you can’t work out how he was ever earning in the first place.
All companies will insist that they pay people on the basis of merit but what counts as merit is, at least in part, organisation specific. In most companies, that intangible ‘being a good chap or chapess’, as one senior exec put it to me, counts for a lot. Good chapness can put a significant premium on your salary. The trouble is, unlike your other skills, when you leave, you can’t take it with you.