What Adam Grant Got (Very) Wrong About His Recent Compensation Comments

On May 24, Aki Ito published an article showing that new hires are making up to 20% more than existing employees in the same roles and inferred that by staying at a job, an employee is paying a ‘loyalty tax.’ I believe the data. I disagree with the assessment. Then Adam Grant posted on Twitter nearly identical data and used the same ‘loyalty tax’ phrase. To his credit, he encouraged managers and companies to give their current employees a raise rather than letting those same employees leave and having to replace them with people making more money who have done nothing for your company. BRAVO! Adam and I very much agree. But he began his tweet with, “During the great resignation, people who stay at their company are paying a loyalty tax.” In a soundbite world, this is a reckless and unnecessary statement that inflames company/employee communications rather than help them. At Goodway Group, we have thought very deeply about total compensation and have an internally published framework and philosophy to communicate it. I’ll touch on the highlights of that first, but mainly want to offer advice to any employee (even those at our company) who want to make sure they are compensated fairly.

First, I view compensation as a sum of many parts:

1. Pay
2. Ability to learn and develop skills and knowledge (including the tools and technology available to stay ahead of the market.)
3. Feedback and coaching from leaders
4. Total well-being including professional, physical, emotional, financial, and community
5. The culture and environment of an organization
6. Title
7. Growth opportunity

Taxes actually provide a great lens for the loyalty argument. Grant is a professor at Wharton in Philadelphia. We can assume there is at least one other university in the U.S. that would pay him more money. Plus, Pennsylvania is ranked 19th for total income tax burden in the U.S. In addition, the city of Philadelphia imposes a separate income tax – over 3%! – on those that work in the city. Is Adam paying a loyalty tax by not joining the great resignation and finding a higher paying job at a university in a state with a much lower tax burden? Of course not. Wharton is a fantastic place for him because of the culture, opportunity, and total well-being in addition to net take-home compensation. Additionally, we can presume Adam has roots after 13+ years in the area. Wharton gives him a bigger platform for creating notoriety and opportunity for himself than 99% of other universities in the country. Plus, he’s surrounded by other brilliant thinkers that make him better. Adam has a great gig even though he could make more elsewhere. Employees must consider all seven compensation factors, not just pay alone.

There are other reasons your current company and role might be a very good place both near- and long-term. Big tech has already begun layoffs in anticipation of an economic downturn. In fact, 100+ people are reporting having been hired by Coinbase, some leaving $400,000+ salaries, only to have that offer rescinded well after the employee terminated their relationship with their current employer. And, when large companies do layoffs, they target those that are most highly paid. Who is that most likely to be following the great resignation and the high incoming salaries of those recently hired?

All of this said, I empathize with many employees who are in companies that have rigid and counter-productive policies. Companies that look at pay only on annual cycles, companies that have percentage ranges for raises despite someone being underpaid within market, and companies that give managers a total dollar amount to allocate are creating scenarios where the employee must leave if they want to improve their pay. It doesn’t need to be this way! In my company, I try to make compensation discussions incredibly simple. I ask managers to consider three things about each of their direct reports:

1. What could this person reasonably make if they went elsewhere?
2. What would it cost you to replace this person with someone of the same caliber?
3. If the person left for another company for 10% more money, and money was truly the only reason, would you regret not having paid them more? (If so, up their pay until the answer is ‘no’!)

To Grant’s point, if an employee's salary is $80k, could make $90k elsewhere, and it would cost the company $90k to hire the next person of equal caliber, the company should instantly make that employee’s new salary $90k. I agree with Grant! Even if that’s across 1,000 employees, the cost of losing and re-hiring is so much more, at least in the long-term. When my company executes on this simple system I’ve laid out above well, we should never lose someone to a higher paying role and regret it.

While our system isn’t perfect, I stand behind it such that any employee in our company can come to me with good data about the market and their performance, behaviors, and potential, and if appropriate, we’ll adjust their pay if it’s unfair compared to other roles and companies with similar opportunity, well-being, and quality of talent surrounding them. This is where I wish Adam Grant focused. On telling leaders they must think about compensation, pay, and retention differently. They must think about how to develop leaders that develop and constantly coach their people. They must think about how to design their organization to develop their people, provide growth opportunities and create the right culture. I wish Adam Grant focused on helping employees think about pay as part of compensation and not as the single driving force in choosing to stay or leave for another company.

?The world is becoming more soundbite driven at the same pace it’s becoming more complex. Grant did a wonderful job telling people to think like scientists rather than politicians, preachers, or prosecutors in his book Think Again. Thinking like a scientist in this scenario requires much deeper thought and conversation than an inflammatory statement that people who stay at their jobs are paying a loyalty tax. It just isn’t true.