Quality

Ever wondered why a premium road bike can cost 10x of an entry level bike or why a pair of jeans can cost 8x another or why some beans of coffee are 5x more expensive than others?

We know that quality pays. But what’s more interesting is that quality pays disproportionately higher.?

Things that are 2X as good, are most of the time, more than 2X as expensive. And that’s because, you can’t buy 2 of a low quality product to experience the value of 1 high quality product. Side note: This argument breaks down for products that one may need in high quantity (e.g. socks); or for product-market segments where ‘experience’ is not a thing (e.g. most commodities) or ‘expression’ is not a thing (e.g. toilet paper) or a buyer that’s not discerning etc.

This case for quality is even stronger for human capital. Quality talent is scarce. It takes a long time for our society to create it. It’s a key success factor for any business that relies extensively upon people. People costs form the single biggest line item for most high-tech companies. Talent is critically important to success in our industry.

Talented (skilled, collaborative, creative, energetic) people don’t just have an impact on their own work; but they lift the game of their teams and companies. Network effects are huge. The point is people that are 2X as good at their jobs as average, are worth more than 2x as average. Kind of like those coffee beans. ?

But most often, companies determine pays, levels based on tenure, prior pay and other internal rules. There’s a tendency to find comfort in numbers. There’s space to account for subjective judgment of someone’s talent and potential in form of pay bands; but the ranges are never wide enough in my experience.?

What’s the answer you say?

Well, this is a complicated issue with many dimensions. So there isn't a single good answer. But fewer levels, wide pay bands & higher leadership discretion in talent evaluation and compensation decisions should help. You’ve gotta make sure that quality is taken even more seriously for your leadership hires.?

This could be simple but incredibly hard to do for most companies. There’s always some legacy to deal with and there could be all kinds of reasons to stick to the rules. But I know of a handful of companies that practice these ideas well. Stripe is a good example. I believe Asana and AppLovin have similar philosophies.

What other companies in your experience seem to do a good job of wide bands, fewer levels and higher leadership discretion in talent acquisition and retention decisions??