The Price and Value of Employees Ep 273

In a candid discussion, the host emphasizes the critical role of Human Resources in a company, underscoring that the company itself is the primary customer, not the employees. He recounts a costly mistake made by a former HR director who conducted a salary analysis leading to unnecessary pay raises, which did not solve any talent attraction or retention problems, ultimately costing the company significantly. He argues that the goal of a company is to maximize value while minimizing costs and that employees should be paid based on the value they provide, not just to make them happy. The host stresses that roles like HR should focus on protecting the company, recruiting top talent, and supporting the company's core value drivers—marketing, sales, and product. He advises HR professionals and managers to think like owners, prioritizing the company’s health and profit above all.

• The company is considered the primary customer by the speaker, not the employees.
• A company must balance priorities between shareholders, customers, and employees.
• The speaker emphasizes the importance of understanding the company's role in serving these three stakeholders.

"Your employees are not your customers, alright? Your company is always your customer, number one. Because a company balances the priorities of everyone, the shareholders, the customers and the employees."

This quote underscores the speaker's perspective that the company itself is the main entity to be served, as it represents the collective interests of shareholders, customers, and employees.

• The speaker believes that understanding the role of HR and investing in employees is crucial for both entrepreneurs and managers.
• The discussion includes the role of HR beyond just having an HR department, applicable to any size of business.

"So if entrepreneurs, if you have a manager or series of managers or leaders in the company, I think for them to understand what the role of human resources and investing in employees looks like, I think it'd be valuable."

This quote highlights the importance of HR understanding for managers and leaders within a company, regardless of whether there is a formal HR department.

• The speaker narrates a story where an HR director made a poor decision due to having too many staff and not enough work.
• The HR director conducted a salary analysis that was not cost-effective and resulted in unnecessary adjustments to employee salaries.

"And so she took it upon herself to do a salary analysis, which is basically a study of how much everyone in the company, quote, should be getting paid based on the role, their experience, what the market's playing, and where they live."

This quote describes the HR director's initiative to perform a salary analysis, which is the setup for explaining why this was a flawed approach.

• The speaker criticizes the HR director's decision to spend significant company resources on a salary analysis.
• The outcome of the study led to an impractical solution of adjusting salaries without adding value to the company.

"And so she literally used company resources, probably $100,000 of payroll resources, to create this solution that then just paid out more money from the company, which is just my wallet, it's just my bank account, right."

The quote illustrates the speaker's view that the HR director's actions were a waste of company resources and personal funds, as the owner of the company.

• The speaker believes HR's role is not to make employees happy, but rather to find individuals who will contribute positively to the company's culture.
• HR should focus on retaining and attracting talent, not on employee happiness, which is a personal responsibility.

"Your job is not to make employees happy. As an owner, your job is not to make employees happy. As a manager, your job is not to make employees happy. As an HR director, your job is not to make employees happy."

This quote conveys the speaker's conviction that happiness is a personal choice and not the responsibility of the company or its HR department.

• The speaker clarifies that the customer of HR is the company itself, not the employees.
• HR must consider the needs of shareholders, customers, and employees, but prioritize the company's interests.

"If you're a manager or your HR director, like, well, really, everyone who works here is my customer. Incorrect. That is not who your customer is. Your customer is the company."

This quote clarifies the speaker's stance that HR's primary focus should be on the company's needs, rather than viewing employees as their customers.

• Companies need profit to grow and to prepare for unforeseen challenges.
• Profit allows for reinvestment in new product lines, legal defense, and other unforeseen needs.
• Overpaying for assets can put a company in a bad position.

"In order for a company to grow, it has to have profit in order for it to weather storms that it does not see that are going to come in the future. It needs to have profit to be able to reinvest in new product lines, in legal defense, in whatever could possibly happen."

This quote explains that profit is essential for a company's growth and stability, as it allows for reinvestment and preparation for future challenges.

• Investors assess assets based on the value they provide, especially human capital in service businesses.
• The goal is to pay the least amount for the highest value, maximizing the price to value discrepancy.
• Paying more for less value is considered a bad deal regardless of the price.

"And so you have, the value is what you get and price is what you pay." "And the goal, I want to be very transparent about this of the company is to pay as little as possible for the highest amount of value."

These quotes emphasize the distinction between value and price, and the strategic goal of obtaining maximum value for the lowest price.

• The first HR director made bad deals by overpaying, which was against the company's interest.
• The objective is to maintain good deals and avoid converting them into bad ones.

"And so the reason that that first HR director made such a terrible decision was because she literally just chose to literally take our good deals and just say, hey, we're going to make bad deals now, and all of our bad deals, we're going to keep as bad deals."

The quote criticizes the HR director's decision to overpay, which resulted in converting good deals into bad ones, undermining the company's financial health.

• Marketing, sales, and product are valued more than operations because they are core value drivers.
• Operations, including HR, finance, and legal, are essential but considered secondary as they do not directly drive top-line revenue.
• Operations should support and enable the core functions of sales, marketing, and product.

"And so marketing brings revenue in, product delivers value that is being exchanged for money. That's fundamentally what a company does." "The point is that operations should support and always enable sales, marketing, and product."

These quotes clarify the roles of different business functions, stating that marketing and product are fundamental to generating revenue, while operations should support these core activities.

• The speaker values roles in marketing, sales, and product more than customer service because they drive more value.
• The speaker acknowledges that certain roles, like a star salesman, can disproportionately contribute to a company's success.

"I do care about more about marketing, sales, and product, period. Period. Because they are the major drivers of value in the company."

The quote directly states the speaker's belief that marketing, sales, and product roles are the most important for driving company value.

• Superstar salespeople may deserve higher than market value compensation due to their unique contribution.
• Different sales roles require different skills, and finding a salesperson who excels in a specific area for the company is valuable.
• Paying a top-performing salesperson more is justified if their contribution exceeds that of several average salespeople.

"So if you have an all-star salesperson, you may have gone through 20 salespeople to find an all-star salesperson for your specific company and your specific product, right."

This quote discusses the difficulty and value of finding a salesperson who is an exceptional fit for the company, justifying higher compensation for their unique contribution.

• Discusses the importance of understanding an employee's value to the company.
• Highlights the potential loss of revenue if a valuable employee leaves.
• Emphasizes the need for management to think like owners when making compensation decisions.

"If we lose that person and then we lose half of our sales, how can you tell me that was not worth 10% more on their base salary?"

This quote argues that if losing an employee would result in a significant loss of sales, it would justify a salary increase to retain them. It underlines the economic rationale behind compensation decisions.

• Differentiates between the value provided by different roles within a company.
• Suggests that not all roles contribute equally to a company's bottom line.
• Proposes that compensation should reflect the tangible value an employee brings to the company.

"What if this person does an amazing job in customer service?... How much less are we going to make? So probably not a lot."

This quote suggests that while customer service is important, the direct impact on revenue might not be as significant as other roles, which influences compensation decisions. It indicates that the value of a role is assessed based on its contribution to the company's financial performance.

• Explains how market value is established based on the value provided by an employee.
• Discusses the harsh realities of the business world where compensation is tied to value contribution.
• Stresses that not all employees can be the highest earners; compensation is merit-based.

"You get paid based on the value that you provide. And a good owner understands that."

This quote reinforces the idea that employee compensation is determined by the value they add to the company, and a savvy business owner will recognize and act on this principle.

• HR is responsible for protecting the company and ensuring efficient use of resources.
• Emphasizes the need for HR to be critical of hiring decisions to avoid unnecessary expenses.
• HR should focus on recruiting, developing, and retaining talent.

"You provide value by one, protecting the company in all ways... And so that's thinking like an owner."

The speaker instructs HR on how to add value to the company, emphasizing the protection of company interests and the importance of thinking like an owner.

• Stresses the importance of recruiting the best talent for the company's success.
• Differentiates the roles of HR and department heads in talent development and retention.
• Highlights the significance of who is hired rather than what they will do, as talented individuals can adapt and excel.

"A good who will figure out the what. And so really good HR is really good recruitment. It's talent."

This quote suggests that hiring the right people is crucial because they will be able to navigate and solve problems effectively, making recruitment a key function of HR.

• Critiques actions taken without clear business objectives.
• Questions the purpose of increasing compensation without a clear need for talent attraction or retention.
• Highlights the importance of understanding the reasons behind compensation changes.

"The only reason that you would want to move compensation is for one of two things. Either you cannot attract talent or you cannot retain talent."

This quote indicates that the only valid reasons for adjusting compensation are difficulties in attracting or retaining talent, and any other reasons would not align with business objectives.

• Describes the company's high-performance culture and low attrition rates.
• Discusses the company's approach to firing underperformers and retaining high achievers.
• Compares the company environment to a high-performance sports team, where only the best succeed.

"This is a winner's environment. And if you are a winner, you will love it here. And if you are not a winner, you won't be here very long."

This quote encapsulates the company's philosophy of fostering a competitive, high-performance culture where only the top performers thrive, which is integral to the company's success and employee retention strategy.

• High-performing teams have a strong culture that demands assimilation or rejects non-conformity.
• New members must adapt to the team's established routines and work ethic.
• The team's culture ensures quick identification of misfits and helps retain the right talent.

And the stronger that core team is, is like, this is how we do it, right? We wake up at five, we go over our scripts, we role play, we do game day review from the day before on sales calls, blah, blah, blah, blah, et cetera.

The quote highlights the importance of a strong team culture where new members are expected to adapt to the team's rigorous routines and standards.

• HR decisions should address specific problems related to talent attraction, compensation, or attrition.
• Unnecessary increases in expenses, such as unjustified salary raises, can negatively impact the company's bottom line.
• Decisions should be made with a clear understanding of their implications on the company's profitability.

And so having that culture allows you to spit people out quickly, but it also allows you to retain. Now, this is my point earlier, which was, why did this HR manager director make this call?

This quote emphasizes the need for HR decisions to be purposeful and problem-solving, questioning an HR director's rationale behind a costly decision without a clear problem to address.

• The primary goal of a company is to acquire value at the lowest possible price.
• Profit is generated from the discrepancy between the cost of value and the price paid for it.
• Every decision should contribute to the company's profitability and sustainability.

The point of the company is to buy value at the lowest possible price. That is the point. I don't care what anyone else says. That is the point.

This quote defines the fundamental purpose of a company, which is to acquire value at a cost that allows for profit generation.

• Employees should be compensated based on the value they provide to the company.
• Star employees, who provide significantly higher value, can be worth more in compensation.
• Fairness in compensation is aligned with the value delivered, not equality among all employees.

I think you should always be compensated based on the value they provide. I think that's the ultimate fairness.

The quote argues that compensation should reflect the value an employee brings to the company, suggesting this as the fairest approach to remuneration.

• Making employees happy is not the company's responsibility; it is the individual's.
• A job's role is not to provide happiness, as satisfaction is subjective and varies from person to person.
• Employees are accountable for their own happiness and mindset.

Making employees happy is not your problem. It is their problem. It is their responsibility.

This quote stresses that employee happiness is a personal responsibility and not an obligation of the employer or the job.

• The company is the primary customer for its employees, balancing the needs of shareholders, customers, and staff.
• Employees, including HR, should protect the company's interests first.
• Misunderstanding the company's priorities can lead to undervaluing certain roles and misallocation of resources.

Your company is always your customer. Number one, because the company balances the priorities of everyone, the shareholders, the customers and the employees.

This quote underlines the idea that the company itself is the main customer for its employees, as it represents the collective interests of all stakeholders.

• HR and managers must align with the company's goals and protect its interests.
• Thinking like an owner and prioritizing the company's health leads to career advancement.
• Misalignment with the company's vision can result in being sidelined or undervalued.

You work for the company. The company is your only customer, and your responsibility is to protect the company, just like everyone else's responsibility is to protect the company.

The quote emphasizes the role of HR and managers as protectors of the company's interests, suggesting that alignment with the company's vision is crucial for professional success.

• The speaker shares personal lessons and failures to guide HR professionals and managers.
• The focus should be on understanding and providing value within a business.
• Aligning with the company's perspective is beneficial for both the individual and the organization.

And so if you are a manager, if you're an HR director, take this to heart. You work for the company. The company is your only customer, and your responsibility is to protect the company, just like everyone else's responsibility is to protect the company.

The concluding quote serves as advice for HR professionals and managers, reinforcing the importance of aligning with and protecting the company's interests for career growth and success.