Did you know that many high-profit companies pay their top employees above industry norms?
Last week I invited Verne Harnish (founder of EO, author of Scaling Up.) to speak to one of my Leader’s Edge landscape peer groups. He was fantastic. We discussed how some of his most successful clients pay their top employees above their industry norms. His clients are making great profit, and not because they skimp on payroll and bonuses.
This is how I tried to run my business, and it is how Mark Bradley of TBG Environmentalruns his, paying above average salaries and incentives.
This same lesson was confirmed by the founder of The Container Store, Kip TIndell, who pays his staff twice the industry average and enjoys triple the productivity of his average competitor. (His autobiography on Audible, read by himself, was very emotional and compelling.) You may not be able to replicate that, but you can learn from it!
You don’t get there by paying a C player more and they magically become an A player. It is about finding and rewarding the right people.
We confirmed this in our peer group meeting. One high-profit member (25% net profit) pays his top employees well, with excellent impromptu and year end bonuses. He was also emphatic that he would not tolerate employees who were a bad values-fit. They go hand in hand, and you could really feel his passion.
The conclusion we reached in discussion with Verne, is that you get what you pay for,and if you want to achieve significantly better results you need to attract and hire a different type of employee.
The next day, (see the photo) we analyzed each member’s divisional profitability and it was eye opening. We identified how the productivity metric of “gross profit per man hour” (GPpMH) dramatically impacts net profit. My conclusion: You need to maximize GPpMH in order to thrive in this new economy. How productive are your men and women?
Jeffrey’s Breakthrough idea: You will continue to struggle if you beat down wages in order to raise profits, especially with your top staff. Rethink who you are hiring and how you are managing and incentivizing them.
- First, make sure you surround your current A (and B) players with other A (and B players). D’s should be moved on, and C’s need better feedback, training or a better fit position. Don’t tolerate someone who is sucking the life and passion out of your culture.
- Think about what you would pay for the ideal candidate, develop an ideal bio and job description, and aim your recruiting in that direction. Be prepared to be surprised by recruiting outside the box.