Step One Toward Sustainable Innovation: Stop Overpaying Employees

6/18/10

1. Stop overpaying employees. Jobs now have inflated value because most companies assume that everyone they employ or hire is above average, which is a mathematical impossibility.

2. Stop poaching staff from other companies, which disrupts many companies and poisons worker attitudes. The “me, first” culture encourages too many job changes and companies are now codependent enablers. This contributes to pay inflation, spoiled workers and disrupts the efficiency of the entire region. This has become a leading reason for the decline of total employment and health in the area as practical companies are increasingly forced to go offshore to build stable organizations.

3. Look for cooperative alliances and associations among small companies. Too many of the big companies are vying to change and control value chains and to become powerful monopolies. This could jeopardize entire software industries, but developers can have collective power if they get their viewpoints organized.

[Editor's Note: This is part of a series of guest editorials we are running as part of the launch of Xconomy San Francisco. It was based on a question we are posing to technology leaders: "What three things can San Francisco and Silicon Valley entrepreneurs and VCs do to foster a more stable environment for innovation in IT, life sciences, and energy, and become less wedded to cycles of boom and bust?"]

Trip Hawkins is Chairman and CEO of Digital Chocolate, a creator of innovative mobile phone games and social applications. He is also the founder of Electronic Arts and 3DO. Follow @

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  • Head Trip

    Let us start this experiment by cutting YOUR salary first. Then we will see how you do. If you still make it at my salary without complaining, then we have a deal. As a start-up employee I can tell you that I do not, by any measure of the imagination, make too much money. I took a pay cut to be here. Happily. Gladly. I believe those who are employed in high-risk ventures should have incentive to go the distance with the company. I even support your “inflated” salary. I believe you earn your keep, why do question the plebeians?

  • Milton Friedman’s Ghost

    Why wouldn’t the principles of a free market apply to labor, too? It certainly applies to executives, who flit from job to job demanding ever higher pay & perks. But then they expect loyalty from underlings, despite low pay and poor working conditions (EA is notoriously bad!).

  • James Sanders

    Your step 2 amounts to “let’s cooperate instead of compete” and that, sir, is awful. Thank goodness the age-old massively unbalanced loyalty dynamic has been on its way out for years. Companies that are really innovating will continue to gladly recruit the best talent and pay them fairly, and those of you who treat your employees as faceless commodities and cooperate to low-ball them will be playing catch-up.

  • Bill

    Absolutely stupid. Let’s see. First we cut everybodies salaries. That should help worker morale. Then we collaborate with other companies in our area to keep these salaries artifically low. That’s actually a good thing–it should help Unionism. I would assume that you feel employee turnover is a good thing, since other companies will then see your employees as easy targets. When will you have your salary cut? It almost sounds as though you “own” your employees and they don’t have a right to try to better themselves if it messes up your profit plans.

  • Phil

    Boy, it’s easy to track your simplistic thought process “Trip”. Underpay employees, so you get the lowest skill levels. They leave your below-market jobs with the early training you provide. This you feel is “poaching”. Clueless it is. It shows so baldly here.
    Finally you argue small companies should form collectives to further their interests, and yet employees should not be free to change jobs when a better opportunity presents itself. You sound like the son of a millionaire, with a false sense of your own value and entitlement.

  • http://www.storycardsoftware,com TBone9992

    What? Was this written 40 years ago when there were pensions and a sense of loyalty? This crap went out the window a long, long time ago. Stop overpaying C level and executives and treat your staff like you work for them, not the other way around, and watch quality, productivity and ingenuity soar. Cooperative alliances and associations will be disastrous and very expensive: Think duplication of all processes++.

  • bill

    “Trip Hawkins is Chairman and CEO of Digital Chocolate, a creator of innovative mobile phone games and social applications. He is also the founder of Electronic Arts and 3DO.”

    He is also an idiot.

  • http://www.boardshop.com.au TonyG2020

    I don’t know if I’m going to agree with this. It is because I’m on both side. But I guess, that’s look unfair.

    Tony
    —————
    Skateboards Australia

  • randomuser

    This guys looks like the bad guy from Karate Kid 3, but anyways…

    So if I’m feeling like I’m under payed and being treated like a cog instead of a member of a team, I’m supposed to tough it out and suck it up? No thanks.

    Much like you Trip, other people in this world have families and loved ones that they want to provide for. If they have the opportunity to better the quality of life for those they love by jumping from one ship to another, more power to them.

  • GregoryH

    The entire premise of this guy’s argument is false. Real wages have gone down every decade that he’s been alive, not up. Alongside that decline, housing & health care has gone up nationwide (even during the current bust) steeply. (Okay, fast food has become very cheap!) So now workers pay most all of their income for housing, and require multiple incomes to afford a home. To finance the basic decline in wages, consumers have taken on staggering debt, and get fat eating the cheapest junk food McDonald’s can squeeze out.

    Duh.

    This guy has no clue, he’s making some bold (though stupid) statement so he can see his name on a web page. Obviously, Mr. Finance, he is not.

  • Bill

    @GregoryH–You are right about real wages going down. One of the least talked about reasons for real after tax wages going down is the proliferation of new taxes and fees government charges to pay for the welfare state we are creating.

    I remember years ago in Massachusetts during a previous recession, the state created a new “Sales Tax” and told us it was temporary. Since then (maybe over a period of 30 years)the tax has gone up, and the list of exempt items has shrunk.

  • GregoryH

    @Bill–No, that’s not right.

    Government taxes and fees have been between 16% and 20% of GDP since 1950, except for last year (and presumably this year) when they dipped down into the 14% territory. We enjoy the lowest tax burden since 1949.

    Government spending as a % of GDP has remained between 17% and 21% except for the Reagan years and last year (and presumably this year). (Very high spending, coupled with low taxes and fees, equals big deficits)

    I can’t speak to Massachusetts, just to the Federal budget.

    Your after-tax wage theory doesn’t comport with the data.

  • chris k

    I think James sanders post above is the best one on this board. cant say enough about it

  • Jim A

    This has to be the most oversimplified, wrong-headed nonsense I have heard in a long time. If you were trying to be provacative, you succeeded. If you ever try to use this to run a company, I want to compete with you. I will take your best talent, pay them commensurate with their skills, and eat your lunch.

  • Scrooge

    Omg. What a desperate measurement mr. Hawkings is taking: he pays low salaries to his employees, his talent is leaving the company, but instead of realizing that he should pay fair salaries to keep them… he is begging the other companies not to take them disguising it as “it’s good for everybody like that!”…when all he’s trying to do is save his own ass. I never saw any over-paid employee in a game company. On the contrary: I’ve seen people counting the pennies at the end of the month to make sure they can eat.