Better pay negotiation: talent, risk and leverage

Monday, January 25th, 2010 - career management, contract negotiation, Employment, recruitment

Better pay negotiation: talent, risk and leverage

funny money

There has been a lot of debate recently over pay levels, specifically that of bankers in light of the 2008/9 financial crisis.

Over the weekend, Goldman Sachs announced that their average worker gets paid £305,000 – think about it, as that includes receptionists, security staff, cleaners, etc, as well as the investment bankers. No wonder they had to release a second press statement which said that UK partners would have their 2010 salary capped at £1million. I can’t imagine how they could possibly survive on that, but I bet a few Ferrari dealers, the odd 3star Michelin restaurant and many Chelsea estate agents were not so happy.

Bankers pay

The argument used for paying bankers so much by the industry is that of talent. The proposition is that these people are talented, and therefore they deserve the rightful pay rewards.

OK, I can understand that, but could anyone be a banker? Bankers these days still tend to be recruited from two levels: Oxbridge mathematics graduates, who are aware of the latest risk theorems; and EastEnd boys, who are raw buy it low and sell it high traders. The later are falling off now, as the traditional routes in and methods of trading are replaced by computers with pre-programmed risked scenarios if the market takes certain positions.

But rather than in most industries where computerisation has lead to fewer people, in the banking industry it has lead to more people employed. Although there are less people on the trading floor, there are more in the back office creating and checking these scenario positions. This leads conceptually to more ability to manage risk, hence more people on the trading floor, and hence the need for more people in the back office. This growth lead to greater risked positions as the banks felt they had the risk under control.

But, what they forget was what every Eastend barrow boy could have told them: at some point, the price gets too high, and you need to do a deal at a lower level. The moment a US sub-prime house sold for less than anyone thought it was worth, the pre-programmed computer held risked scenarios kicked in, and values dropped; which kicked in a second set of scenarios, and the market dropped further; and so on and hence forth until we reached the bottom in late 2008.

And yet, the industry argues that these people are talented, and hence justify pay level?

Pay level

What an employer will pay an employee is about talent, but that is just one factor. An industry commentator on BBC Breakfast said this morning that Wayne Rooney who scored four goals for Manchester United on the weekend is paid £120,000 a week, was that he knew of few people with the talent to be able to do that. I think the commentator was right, but Wayne was pretty happy on £1000 a month as a YTS trainee at Everton playing the sport he has loved as a child, so what makes the difference?

According to most, higher pay levels are derived from two factors: risk, and leverage. Playing football doesn’t include much risk, but with television money coming in at so great a level, it does enable players to leverage clubs against each other (FUD factor as a 1970’s IBM sales person would have known it: Fear, Uncertainty and Doubt), to enable higher pay.

In past pay negotiations, risk was used as a high pay leverage factor. One of the jobs I could never imagine doing is that of steel maker, specifically the person who releases the hot molten metal fresh from a 1000deg furnace into the ingot moulds. The number of people killed in the 17th through early 20th century doing such a job and killed by splash-back is huge. But, thanks to organisations like the Health and Safety Executive, these accidents are rare today in Europe and North America, confined now to the fast expanding Asian economies. Hence, risk no longer has the wide leverage it once did in so many jobs, and hence does not deliver high pay.

Modern high pay is delivered by leverage, better know as pay negotiation.

Pay and leverage

A report in December 2009 by thinktank the New Economics Foundation said that in value for money gained, cleaners were the best value for money British workers. Using a method they created, they calculated how much someone should be paid in relation to the value they create through a series of measures including conventional economic returns, environmental impacts, and knock-on effects for jobs and well being in society.

The report says that the most economically destructive jobs were: tax accountants, laying waste to £47 of value for every £1 they created; elite City bankers (earning £1m plus bonuses) destroy £7 of value for every £1 they create; and advertising executives wreck £11 of value for every £1 they are paid. The best value returned workers were: waste-recycling workers generated £12 for every £1 spent on their wages; childcare workers create between £7 and £9.50 of value for every £1 of pay; and hospital cleaners create more than £10 in value for every £1 they receive in pay.

Personally, I would suggest that there is probably one job that the thinktank missed out of their calculations, and that’s because its voluntary. Yes, the home carers and charity shop workers bring huge value, but the RNLI released its 2009 figures this weekend, and they made a record number of launches in 2009 thanks to people “staycationing” due to the credit crunch. Volunteer lifeboat crews across the UK and Ireland launched a total of 9,154 times in 2009, rescuing 8,186 people: that’s almost one person saved per launch.

Negotiating better pay

The three levers to better pay are simple to understand: talent, risk and leverage. If you don’t think you have rare talent (alternate: how long would it take to train to do your job?), and don’t work in a highly risked job, then your best method of is pay negotiation leverage.

FUD works, but most often only once and rarely do you get what you think you are worth: there has to be acceptance of value on both sides to agree a pay deal. The best way of gaining better pay, simply, is to change employers. When value is in the eye of the beholder, if the other party wants something more than the presently owning or employing party, then they will pay more for it.

The conclusion from the modern career is that is is self managed, and rewarding if you can create value in the recruiting employers eyes. How do you do that? A great Professional CV starts that process.

Good Luck!


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