Stop thinking tenure gets you promotions — it doesn't. A former senior leader at Amazon explains what actually works.

As a former senior leader in analytics roles at Amazon, eBay, and other organizations, I've frequently witnessed employees cite tenure in their list of reasons for deserving promotion or a raise.

While time spent in a specific role may correlate with commitment, experience, or knowledge, it doesn't necessarily correlate with value to a company. To get a raise or promotion, you're going to need more than tenure — you're going to need to create additional value or increase your scope of work. 

Years ago, I was working at a large tech company, and I was speaking with a coworker. This person had been with the company for six years and he was frustrated about never being promoted. He stated that he put in his time, had been loyal to the company, watched others get promoted after only a few years, and said he deserved a promotion.

I was reading about a similar situation where an hourly retail employee was lamenting about receiving a 2% raise, even though she had been an employee for five years. 

What these stories have in common is that both individuals mistook tenure for value

In a capitalistic world, companies care about getting the most value for the lowest cost. While this feels brutal and unfair at times as an employee, most individuals behave the same as a company if they had to give out promotions and raises.

For example, if you're currently paying $50 for someone to mow your lawn, you wouldn't likely be willing to pay that person $60 to do the same job, simply because they've been mowing your lawn for the last three months or the last three years. This is because they didn't provide you with any additional value. 

Regardless of the length of your relationship with this employee, you wouldn't want to pay more for the same service. Neither would a company, and this is exactly how they are thinking about raises.

From a company's perspective, there two main considerations when dealing with compensation

The first consideration is about the value that is being generated by the employee: A company wants to get the best value, not necessarily the lowest price. They could find an entry-level salesperson with no experience and pay a very low wage.  The company could also find a very experienced salesperson who would likely cost a lot more. But choosing between the two options requires an evaluation of value. 

If the person with no experience costs $40,000/year, but helps the company generate $100,000 in sales revenue, the company is getting a 2.5x return. But if the company pays the experienced person $200,000/year and that person help the company generate $1,000,000 in sales revenue, the company is getting a 5x return. In this case, the company is getting more value by paying more, but paying more doesn't always equate to more value.

If we fast forward five years and assume that the person making $40,000/year asks to make $50,000/year, the company is going to want to justify the additional cost. If the employee's output is 5% better than 5 years ago, the company is getting more value as they are making $105,000 instead of $100,000 per year. But it's costing the company an extra $10,000 in payroll to make $5,000 in revenue. This is a poor return on investment.

While this is a straight-forward example, calculating value is usually very difficult for employees who are not salespeople. This is because it's hard to connect the employee's efforts to revenue and profits for the company. For many positions, it can be hard to determine if an experienced person is providing more value than a non-experienced person. This can be especially true with unskilled labor positions. 

For the hourly retail employee that was mentioned in the article that I read, if she were to receive a 10% raise from $15.00/hr to $16.50/hr, would she produce more value for the company? It's difficult to say for sure. And when the value isn't easily quantifiable, the company is going to have a hard time justifying the additional labor cost.

 The second thing that the company must consider is the cost of replacing the employee

By not giving the retail employee a raise to $16.50/hr, the company risks the employee quitting. The question that the company will ask is, does the hire salary cost outweigh the cost of hiring a new employee? If the company can hire a new employee for $15.00/hr and they don't have to spend much to train the employee, it might be worth it to allow the experience employee to quit.

But chances are, even if the cost of finding a new employee would exceed paying the current employee more, the company still may not be willing to pay more. Because it is so challenging to assess the value created for each employee, the company may run into a risk of compensation inflation. This could occur when one employee feels that they deserve a raise based on tenure, and then other employees request a raise simply because someone else got a raise. To avoid payroll inflation, a company may choose to allow the more experience person to quit. Also, the company is used to dealing with people quitting and it's rarely detrimental to the business. But there is a way to receive a raise, and that's through the creation of value.

If you want more money, deliver more value 

The easiest way to justify a higher salary is through value creation, not simply by staying with a company for a long period of time. If you're looking for a raise, you'll need to demonstrate how you've provided value, and how your additional cost (above that of someone that they could hire today) is justified. And if you're looking for a promotion, you'll have to demonstrate how you've provided a significant increase in value, which is frequently demonstrated through a significant increase in your scope of work and responsibilities. But if you are being paid below the market value or your added value isn't being recognized, it may be time to find an organization that does value all that you have to offer.

Post a Comment

Previous Post Next Post