Why it Pays more to Pay More: Transcript
WorkLife with Adam Grant
Tuesday, May 11, 2021
ADAM GRANT: In Spring 2006, Rosita Barlow was excited to graduate from college with a finance degree and find a job as a financial analyst. But competition for jobs was stiff, and she had bills to pay.
ROSITA: I needed a job right away. So I started as a data entry specialist making $10 an hour. I grew my responsibilities pretty quickly and in a couple of months, my salary had become about $30,000.
ADAM GRANT: Rosita started working at Gravity Payments, a financial services startup. She quickly discovered that $30,000 a year was not enough to cover her living expenses AND student debt! To make ends meet, Rosita had to find a second income...
ROSITA: I would leave work at five and I would start work at McDonald's at 5:30 and I would go 5:30 to 11 every night on weeknights.
ADAM: wow. Oh my gosh, you did that for a year and a half
ROSITA: I did that for a year and a half.
ROSITA: It was survival mode for me. there were moments in time before I actually got the job where I would line up at a food bank to get some food, because it was that important for me. Like that was the survival mode that I was in. And McDonald's gave me a little bit of a breathing from that.
ADAM GRANT: For over a year, Rosita didn't tell anyone about her second job. Not even her friends knew! Her life revolved around work.
ROSITA: there was so much that I lost. There was so much in my friendships and the relationships that I built, my health probably took the hardest hit around that time but during that time, all I needed to focus on was get to one job and get to the second job and do well at both of them.
ADAM GRANT: She excelled in both jobs. McDonald's kept offering her promotions, and she kept turning them down. But one day, they made an offer that made her think twice...
ROSITA: I was entertaining the idea because it was going to give me a dollar more an hour. So I took the manual and I said, let me take a look at it.
ADAM GRANT: Back at Gravity, without thinking twice...
ROSITA: I pulled the manual out of my bag. And I left it on the desk.
ADAM GRANT: The CEO walked in to hand her something.
ROSITA: And he saw the manual on my desk. And so he called me into the room and They said "Do you want to fill us in on what's going on?"
I broke down crying. I was like, well, here we go. I'm about to lose my job.
ADAM GRANT: But they didn’t fire her. They asked her what her finances looked like and what salary would make it possible for her to leave McDonalds.
ROSITA:So I went home and I did some math. I came back and I said, I need to make an additional $10,000 a year from Gravity. And they talked for a little bit and came back and they said, okay, we'll give that to you.
ADAM GRANT: We all know the importance of a living wage. But that was just the beginning. Gravity went on to do something much bolder with Rosita’s income-- and everyone else’s. It made me wonder: what if better pay -- or even generous pay -- is better for people and organizations too?
I’m Adam Grant, and this is WorkLife, my podcast with the TED Audio Collective. I’m an organizational psychologist. I study how to make work not suck. In this show, I take you inside the minds of fascinating people to rethink how we work, lead, and live.
Today: pay, and how doing what's right may also be what's best for the bottom line.
Thanks to Logitech for sponsoring this episode.
ZEYNEP: When I was in junior high school. My dad had a small, plant, a very small one. So I, I worked on the assembly line, and I was doing the pockets for the bath robes
ADAM GRANT: Growing up, Zeynep Ton worked in her family's business in Turkey...
ZEYNEP: And one of the things that I remember the most was how many mistakes I made and how many times I had to ask the supervisor because my overlock machine was not working because I made a mistake. The work that looks so easy. It's actually not that easy. It requires competence. That requires skill. it requires experience.
ADAM GRANT: Zeynep is now a professor at MIT. Her specialty is operational efficiency in industries with low wages and profit margins, like retail and food service.
We’re going to talk about the impact of paying people fairly, even generously.
But let’s start by looking at what happens when people are underpaid.
ZEYNEP: So there's a ton of research that shows that when you don't pay enough, and people can't put a roof over their heads and food on the table, then their physical health suffers. their mental health suffers. What happens is you reduce people's ability and then you end up designing an entire operating system that creates mediocrity by design. So when you're constantly thinking about money and how to make ends meet, then, yourIQ literally dropslike there's a 13 point drop in your IQ.
ADAM: What's the mechanism there?
ZEYNEP: the mechanism is that your brain is constantly thinking about other things about, do I pay rent this month? Or do I go to the doctor this month? How do I pay for childcare? You don't have resources to be able to think and be productive that way.
ADAM: There are a lot of people who would look at that pattern and say, well, If you're struggling to make ends meet one of the best things you can do is excel at work so that you get promoted and you get paid more.
ZEYNEP: this is the part about the vicious cycle that workers find themselves in when they're paid very little because when you're not paid enough and you have health problems, you have cognitive functioning problems, then your performance suffers. And then of course you don't get promoted.
ADAM GRANT: For Rosita Barlow, that vicious cycle ended when she got the $10,000 raise at Gravity and she was able to stop working at McDonald’s. That changed everything.
ROSITA: I moved out of my apartment, which was a dead zone apartment and I started hanging out with my friends. I had time. I had time for me.... I had time to decompress.
ADAM GRANT: Not only did her health and personal life improve, but she was able to contribute more at work too.
ROSITA BARLOW: So I was willing to spend more than 40 hours a week there. My career was starting to take off because I was like, Oh, I can do all of this stuff. Give me more. So I was willing to work, you know, 50, 60 hours coming from working 80 hours, like 50 hours to me was like nothing.
ADAM GRANT: Soon Rosita was promoted to director of operations, and she’s now the director of sales at Gravity. For Rosita, the 10,000 dollar raise was a baseline, a living wage. That’s a bare minimum for any employee anywhere.
Better than that is fair pay -- which is a living wage plus an amount that reflects an employee’s value to the organization or in the labor market.
But research suggests it might be worth kicking it up a notch and making pay not just fair, but generous. Many employers are happy to pay their stars well. They offer raises and bonuses as rewards for high performance. But raises and bonuses might actually be more important for motivating low performers.
Consider an experiment with people who make about $200 a day planting trees in Canada. One day, the firm gave them a surprise bonus of $80.
The top and middle performers were about 10 percent more productive. But the bottom performers were 35 percent more productive.
The bonus virtually wiped out the productivity differences between middle and bottom performers. Why?
Because non-stars are more likely to appreciate being treated unusually well, which motivates them to work harder to reciprocate.
Gratitude. That’s the first motivational benefit of higher pay.
What that tells us is that instead of budgeting for big bonuses for a few, organizations might get more bang for their buck by paying everyone better across the board.
You can see this even with modest raises.
In an experiment with freelancers mostly in India, when people were hired at $3/hour, those who were given a surprise raise to $4/hour were 20 percent more productive.
And research at a Fortune 500 online retailer has shown that even an increase of $2 per hour can be enough to boost productivity and reduce turnover.
But Gravity went much bigger. After learning that Rosita was working at McDonald’s to make ends meet, Gravity’s CEO and cofounder, Dan Price, became more and more concerned about pay.
ROSITA: He's like, I just think it's time that our employees receive a raise that's worthy of the work that they're doing.
ADAM GRANT: In 1965, CEOs made 21x the average worker's pay. By the year 2000, they were making over 300x the average worker’s pay.
Dan decided it was grossly unfair that most of his workforce was still struggling to get by while he earned over a million dollars a year.
So in 2015, he had an idea and called Rosita for help.
ROSITA: He said, I'm thinking about instituting a minimum 70 K wage. And I was like, wait a minute. That's more than doubling. Most of our people's salaries. Like what?
ADAM GRANT: He wanted to cut his own pay and give all 120 employees a base salary of $70,000.
ROSITA: It wasn't 70K starting tomorrow. It was an implementation. So we are moving everyone effectively to 50 K. And so that for a lot of people was anywhere between like, uh, you know, a 15 - $20,000 increase.
ADAM GRANT: There’s evidence that when individual employees get special raises, their peers get demoralized and perform worse. Gravity prevented that reaction by raising the pay base for all employees.
Which reframes what we’d traditionally think of as the very purpose of pay. Instead of dangling pay as a carrot to incentivize people, think of it as a symbol of how much you value them. When people feel valued, they add value.
ROSITA: Companies tend to use compensation as a motivating factor. What we did was to get people past their basic needs. We are not trying to use money to motivate anyone.
ADAM GRANT: But as Gravity started paying more generously, motivation did climb...
ROSITA: There was a high to everything. Um, there was a high to like wanting to do a really good job. We were riding that wave that emotional wave.
We had employees who lived an hour and a half away and had to commute in. those people were now able to afford living closer. So now we've just killed a three hour commute on a daily basis and knocked that down to maybe like 20 minutes of a commute. And that actually got them excited and that gave them more of a mental space to say, like, I want to do all of this stuff. I want to give back in some way to the company that's supporting me with these goals.
This is a second motivational effect of generous pay: loyalty. People became more committed to the company.
ROSITA: I am usually a loyal person and, uh, I say that loyalty has increased, you know, I'm at a point in my life right now where I can't see myself leaving Gravity for any reason.
ADAM GRANT: And that leads to a third motivational benefit. When people have a bigger piece of the pie, they feel a greater sense of identification and ownership, which inspires them to contribute above and beyond their job descriptions.
ROSITA: So the effects of 70K up until today, uh, I think has contributed and added to the culture that we created, where. we've already, you know, had it set up that we are going to do things as a team, as a company. We're going to think about this together and that the voices of our frontline people are important to us to hear and acknowledge to help make decisions.
ADAM GRANT: Gravity’s generous pay wasn’t the only factor in this growth, but almost six years later, their revenue has tripled, their customer base has doubled and the workforce has grown 70 percent! Also, 70% of employees were able to pay down debt.
Generous pay might sound like a fantasy, but in a growing number of companies, it’s actually becoming a profitable reality.
How high does a salary have to go to be generous? PayPal found a couple years ago that, even though they were paying market salaries, entry-level and hourly employees were still struggling to get by.
So they decided to measure Net Disposable Income — that’s the amount of money that you have left each month after covering taxes and essential living expenses. PayPal set a goal that all employees should keep 20% of their pay. They’re now working to hit that mark by lowering the employee costs of some benefits and raising salaries.
To have the desired impact, though, you have to do more than write checks.
Research shows that generous pay works best when it goes hand in hand with other changes centered on seeking workers as whole people worth investing in.
One of the places where Zeynep Ton studied this is QuickTrip.
ZEYNEP: It's a convenience store chain with gas stations, like seven 11. But they have a lower acceptance rate than MIT Sloan.
ADAM: What? At a convenience store?
ZEYNEP: Uh, because pay is so high that there are any convenience store. If you're a full-time employee, you can make $40,000. And they are promoting from within. So you can see yourself moving up in the organization and they set you up for success. Of course you attract a better workforce in a way that creates. You know, a high motivation for your workers, but also great experience for your customers and high productivity but also competitive upside. They can do things that their competitors can not do. And you designed a system for excellence.
ADAM GRANT: So what stands in the way? Cause you've, I mean, you've done the math here. You made a strong case that it makes sense to pay people more, that you can attract a better workforce. You can motivate them, you can develop them, you can retain them. That does seem like a win-win. And yet a lot of leaders say, I can't do it. I’m sorry.
ZEYNEP: they don't believe in people. They don't have faith in an average person's ability to do a good job, um, in their motivation and in their competence. And, and of course in public companies, there's a tremendous emphasis on the short term performance. And a lot of executives compensation is tied to short-term performance. So that's one of the things that gets in the way.
Another thing that gets in the way is that mediocrity is a lot easier to pursue than excellence. The playbook is simple, pay as little as you can, people come and go. For the excellence playbook, it’s a lot more complicated. And it requires more competence from leaders. It's easy to say, pay as little as you can, but how, how high should you go? How much should you empower your people?
ADAM GRANT: Better pay is one part of what Zeynep calls a Good Jobs Strategy.
ZEYNEP: So the good job strategy is a strategy built around a capable, motivated workforce, and a stable workforce. So it's a combination of investment in people and operational choices that leverage that investment so that you can win with your employees and deliver a great experience for your customers.
ADAM GRANT: That sounds appealing. How do I do that?
ZEYNEP: So you do that by first having a mentality that people are not just a cost to be minimized and people are the driver of sales, profits, and growth.
ADAM GRANT: Employees are not costs. They’re assets, and they should be treated and paid well. That’s the starting point! But you also have to change some of your operational decisions...
ZEYNEP: for example, You simplify your product line or you simplify your operations so that people can be productive. One of the companies I studied is Costco. And if you go into a Costco store, there are 4,000 products. If you go to a typical supermarket, there are 40,000 products. It's a lot more efficient for Costco employees to shelf those products, to be knowledgeable about those products. Now, when you design a system that increases people's productivity, now you can pay them $24 an hour on average and they empower their employees to make decisions.
ADAM GRANT: Empowering employees to make decisions is key to creating the excellence playbook that can help you achieve generous pay across the board.
But what if you take this to the extreme, and empower people to make decisions about their own pay?
More on that after the break...
RICARDO: We were searching our people when they leave to see if they're taking something from us, we're docking their time because they're four minutes late...as I said, I can't.
ADAM GRANT: Meet Ricardo Semler. His father founded a manufacturing company in Brazil called Semco. And when Ricardo joined in the 1980s, he noticed there was something off with the culture.
RICARDO: there was no transparency. People didn't really know what's going on. there were silos, there were cliques, there were those lack of information, so forth. And so my feeling there was that we didn't have the possibility of synergy in that company,
And because my father was 50 years older than me he was at a point where he said, okay, well, you know, do it your way. And I'll, I'll just watch.
ADAM GRANT: So Ricardo went rogue. He decided to trust his employees with information that managers normally hide. He put a computer in the company cafeteria that had everyone’s salary on it.
RICARDO: I remember it was about midnight. We left it there and one of the floors and we just plugged it into the wall. As soon as they realized how that worked, we then said, let's start transparency by putting all these numbers as if they found it themselves. Oh, I found the payroll. I found the profit margin mechanisms and so forth...
ADAM: Wait, you planted that there for them to discover?
RICARDO: Yeah, we just kept throwing in more and more information and somebody would say, boy, I found the payroll. And then as people said, Oh, let me see. Let me see. Let me see. When they finally brought it up with us... that's fine. But it was in the system the whole time. It's good that you discover it!
ADAM GRANT: This was the beginning of a radical experiment in generous pay. One of the biggest challenges of paying people generously is social comparison.
You’ve probably heard that comparison is the thief of joy, and it’s not unique to humans.
Take capuchin monkeys. In experiments, these monkeys are perfectly happy to be paid in cucumbers until they see a peer get rewarded with grapes. Then they get so mad they start throwing cucumbers at their boss. Humans are a lot like monkeys. We’re perfectly happy with our salaries… until we find out that a coworker is making more.
That can lead to envy and resentment, motivating employees to undermine their colleagues and the organization.
So many organizations go to great lengths to keep pay a secret. But research reveals that keeping pay secret hurts performance by fueling perceptions of unfairness.
It signals that something fishy is going on.
A century ago, a magazine company published a memo forbidding employees from discussing their salaries with each other.
The next day, they showed up at the office wearing their salaries on signs around their necks.
RICARDO: That's a complete waste of time for such a short life.
ADAM GRANT: When you start from transparency, you cut a lot of time, so it's more efficient. The key to finding the sweet spot between deep secrecy and having cucumbers hurled at you is to be thoughtful about WHAT you’re transparent about. And evidence suggests that where transparency matters most is not in the outcome, but in the process. If you want people to feel fairly paid, you don’t have to tell everyone what their colleagues are making. But you do need to tell them how pay is determined.
That’s called process transparency.
One interesting example is the salary formula at the social media company Buffer.
They benchmark salaries for each role based on market data and experience level. Then they factor in the cost of living based on location.
This way, people inside and outside the company can clearly understand how they got to that figure. If you know how the outcome is determined, you can trust the system and trust each other.
At Semco, Ricardo had a bold idea for making the process of determining pay even more open. He started rethinking whose responsibility it is to set salaries in the first place.
RICARDO: we started saying, you know, actually we don't have to be involved with, how much you're paid to do that because there's only a set amount of information that someone needs to determine the right salary.
ADAM GRANT: In traditional jobs, there are set pay grades. Each position and level has a predetermined range.
But at Semco, they tossed the pay grade distinctions out the window. They had each employee set their own salary based on what they felt was fair.
RICARDO: And so we said, here's what everybody makes. Here's what you would make somewhere else. Here's what we make as a profit, put that together with the other two and set your own salary,.
ADAM GRANT: I imagine there were some people who thought you were crazy. What kind of pushback did you get?
RICARDO: From the business community, they were all betting that it wouldn't take very long for this to go bust. The self set salary thing worked fine from day one and it always worked and it wasn't, it wasn't an issue.
ADAM GRANT: And so when we had 110 people, they said, wow, you know, it was small ...when we had 300 or 300, but it's only Brazil...
To me, that’s already a conservative test: Ricardo was attempting to prove that you could trust people to set their own salaries in a traditional manufacturing company.
But he didn’t stop with Brazil.
RICARDO: Then we had Brazil, Argentina, Portugal then say, wow, 500 at 5,000 people. And in 19 countries that kind of went away.
I’ve been studying generosity my whole career, but letting people set their own pay is a whole new level.
ADAM GRANT: Not just executives-- manufacturing, engineering, and the cleaning teams all got a say in what they earned.
If you were told you could pick your salary, what would you do?
I’m guessing you wouldn’t lower it. The question would be: how big should my raise be?
In surveys, two thirds of people who are paid the market rate think they’re underpaid-- and over a third of people whose salaries are above market still think they’re underpaid.
As a leader, would you trust employees not to take advantage of your generosity?
RICARDO: Everyone here is a full adult, which is already making decisions about kids, about love, about electing a governor, the heck they can't make a decision about their workplace. And that includes everything. What time do you want to show up? How many hours do you want to work? And how much should you be paid? It was all just part of one rationale
ADAM GRANT: I can only imagine there were some people who've set their salaries too high.
RICARDO: of course, and too low. So I'd say basically about 80, 85%, , were perfectly within the range, let's say plus, or minus 5% of what we thought or what they were making before. And then we had about the same number of people, maybe 10% who went, let's say too high or too low. The too low are all the people who are more concerned with job security than they are with that extra 10%.
ADAM GRANT: Economists have actually studied this. They find that when people get to set their own salaries, they take home more money-- but surprisingly, they generate higher profits too.
When people decide they’re worth more, they work harder and smarter to earn it. This is the fairness instinct at play: yeah, people think it’s unfair to be underpaid, but they’re also uncomfortable being overpaid.
I’ve found in my research that at work, the majority of people are not takers or givers, but matchers: they believe in giving what they get.
Asking for more than they deserve would violate their sense of justice, and if they feel overpaid, they elevate their contributions to restore a sense of fairness.
Letting people set their own salaries in their own jobs might be too extreme for your workplace.
But the data and Semco prove that it’s possible to be more generous with pay, more trusting of people to earn what they think they’re worth.
Of course, when you’re running a company, you still need to make sure you’re paying people fairly and creating accountability.
So at Semco, they brought process transparency into the company’s budgeting process and involved employees in that as well. Every team had to reevaluate the budget every six months.
RICARDO: And we said, now for this six months budget, you guys say how much you can or we'll make, and you write down on a piece of paper who you need.
Let's say the 15 or 20 people were in that department. They put together the budget. And they say for the next six months, we're going to do a million dollars a year of a month of business. here are our costs, payroll, blah, blah, blah, blah. And we're going to make 8%.
ADAM GRANT: Let’s say you work in the marketing department at Semco. Every six months, you get together with the rest of your department and analyze the budget.
And this time, it’s in the red, so your team can’t afford your self-set salary for the next six months.
In a typical organization, this might lead to layoffs. But at Semco, they look for alternatives…
In this case, you wouldn’t be fired from the company. You’d be fired from that department, but given the chance to relocate to another department where you could make your preferred salary. This is common practice at Semco. If you want a higher salary, you tell your manager what you’d like to make, and see if there’s a role where that’s possible.
RICARDO: Let's find a way for you to make that kind of money, doing something else for us. And so we started creating 11 different ways to pay people. We could pay by commission. We could pay by royalty over the top line Royalty over the bottom line milestone payments.
In other words: you get to choose how you’re paid, not just what you’re paid. Some people prefer salary, others prefer a commission and bonus structure.
GUILHERME: Uh, it's totally casual. My name is Gilherme Gusson, today I'm responsible for the operations here. just like engineering, quality assurance.
ADAM GRANT: Gui started his career at Semco as an intern in 2006. About a year or so later, his boss wanted to hire him full-time. But before they closed the deal, Gui brought up the salary he wanted for that job.
GUILHERME: Basically it's that just a conversation, probably in the lunchtime or any place.
ADAM: So you're just sitting down at lunch and you casually say to your manager, Hey, I'd like to make a lot more than the market average for this new role that I'm starting, that I've never done before.
GUILHERME: Yeah, I just presented the number and then he actually helped me to realize that it was much more of the average of the market. And they heard me a lot about my expectations and my engagement. We set a salary there and it was lower than my initial expectation, but I felt participating on it and engaged..
ADAM: how much lower was your salary than what you wanted.
GUILHERME: I believe 15%
ADAM: 15% lower. And was the final amount still higher than what people would typically make in, in that role in other companies?
GUILHERME: it was above average.
ADAM: got it, so you still were being paid generously. It was just, your target was even higher than that
GUILHERME: Exactly. Exactly. When you leave a traditional negotiation, you, you always feel that,, did I leave money on the table? Did I should ask for more you didn't see the other side clearly, and you didn’t share your side clearly. And when you enter a company with this feeling, I believe you lose engagement, autonomy.
ADAM GRANT: They’re still running a company. Managers still have the authority to override salaries if they can’t afford them or if they’re unfair. But they can be unfair in both directions. There’s a risk that certain people and groups—potentially those who are already facing disadvantages or job insecurity-- will be less comfortable asking for more.
To make sure no one is being disadvantaged, once people’s salaries are set, we need to analyze whether there are gender or racial disparities by job.
And at Semco, managers sometimes intervene on behalf of employees.
GUILHERME: Yeah, it just happened, I believe less than one month ago. The guy was asking for a salary lower than the average of the market. And we asked for his expectations because it's part of the process. And then we just did the job proposal with a higher salary and he was really happy about it. That's it. And we explained why, and it's easier to do it like this. So
ADAM: Wow. How, how much by percentage about how much more did you give him than he was asking for?
GUILHERME: In this case, it's around 25%.
ADAM: Wait, you gave him 25% more money than he wanted to do the job.
GUILHERME: Exactly. Because,this is the natural salary for the market. For this position, these responsibilities, we don't want them to lose. We don’t want to take advantage of it.
ADAM GRANT: Semco’s approach is a clever way to make pay transparency work: when everyone sets their own salary, no one worries about being unfairly treated.
They don’t go around throwing cucumbers at their coworkers who get grapes-- if they’re eating cucumbers, it’s because they picked them!
RICARDO: there's nothing to be envious of because you watched this other person who now makes $92,000 because you can look it up in the system and you're making 49. try making 92 to set your own salary at 92. And let's see whether your, you show up on the list of people that are needed for the next six months. So no jealousy, you're free set it at 400,000. See what happened.
ADAM GRANT: I asked Gui if he was worried that his coworkers would be envious.
GUILHERME: I believe no, no, it wasn't something that I was concerned about. I'm more concerned about it if they gave it to me. And, I didn't perform it well. When you get your salary too high for the position or for the responsibilities. It's not good for you or for the company.
ADAM: Would you feel guilty?
GUILHERME: Probably... I don't know if the word is guilty, but in debt, probably I will feel in debt with them. trying to, to fill that void between my responsibilities and, and what they were paying me for.
GUILHERME: Because, uh, it has to be sustainable for both parties. If for any reason, Semco starts to put situations that is not sustainable for the company. It's not going to be sustainable for me in this environment to be there in the future.
ADAM: It also almost sounds like you think it would be unfair if you got paid more than your performance justified.
GUILHERME: Yes, that was for sure. We have to have revenue, we have to control our costs. We have to control our expenses.
ADAM GRANT: So you run this experiment, people set their own salaries. Do you end up paying them more generously than they had been before overall?
RICARDO: I think that if we did that once, and I think we came to six or 7% more payroll and we had before...It's not relevant. It's much more important to have people feel that that's not an issue between a company and that they can, they can alter that, uh, whenever they want. One particular case was very interesting of a person who was a guy who was 23, and, uh, he came back and he put in a value, which was three times what he was making.
ADAM GRANT: Whoa.
RICARDO: And we'd never three times, 20% for three times. And we thought. You know, there's this, this person must have something that we don't know because he obviously wasn't narcissistic. It was just a very calm feeling that he knew he was worth three times as much. and so we pulled him out of the group, because they wouldn’t have him in the group, and we said, let's do something else. We're going to put you in what we call our Lost In Space program...You roam around the companies as you wish. And the only agreement we have with you is make your salary every month. And he spent one year roaming around doing things in marketing here and in production there. And every time that salary, which was three times what, what he had before he made every month. And so that was fine with us. And then he became CEO of one of our main businesses
ADAM GRANT: What, what was he hiding all this time? What made him so valuable?
RICARDO: He was a strategist. He was a real thinker. Or et cetera, everybody, he didn't talk. He was no good at articulating, but he was a profound thinker. And that to us in the end was much more valuable than somebody who can bullshit everybody in the room.
As with generous pay, process transparency doesn’t operate in a vacuum. To make that kind of generosity work, Ricardo had to build a whole culture of trust, flexibility, and freedom.
ADAM GRANT: Sometimes people used that freedom to create new opportunities for Semco. One guy had been running a series of businesses for them, and they all went bankrupt during the dot-com bust. Despite the failures, he had proven his strategic thinking skills, so Ricardo asked him what he wanted to do next.
RICARDO: "I could be a stock picker. And I think that would do that better as an investment banker." Okay. So what do you want to do? He said, "I want to start a small investment business." And I said, well, whose money he said was yours.
And how are we going to distribute the ownership of this company? He said, "I'll keep 80% and I'll give you 20." Today, he has $1.2 billion of his own invested in the market that has become one of the largest investment bankers in Brazil.
And I'm left with a small percentage because I didn't, I didn't think all that was going to happen, but anyway, so, you know, that's, that's what it takes. Just, uh, believing that everybody does something well. And until you find exactly what it is, you shouldn't stop trying.
ADAM GRANT: Semco’s approach to trusting people has been in place for several decades now.
I think we should be running more experiments around systems of paying people well that are good for them and for the bottom line.
One of the more recent experiments at Semco is a fun example.
RICARDO: When you think again, as a psychologist, you think Adam, uh, how will we, how we distribute, how we live our lives.
When you finally have money, you have no time to make good use of it. When you finally have time, you have neither the money nor the health. It's a very stupid life that we set up for ourselves. And so we started a program called retire a little and retire a little was this, you said, we'll sell you your Wednesday back for 10% of your salary. Okay. It could be 20% if you considered five days, but we're buying talents. So we'll sell it to you for 10%. Okay. And on this Wednesday, starting next Wednesday, you are going to do whatever the heck you were going to do when you retire.
Because now you have the money. We'll give you the time you'll have the health and you have the money. We'll give you the time.
ADAM GRANT: This is incredible. So if I'm doing the math, right, it only costs me 10% of my salary to get 20% of my week off.
ADAM: Wow. and how did employees react to that?
RICARDO: That's the bit, when I say we, we. We put these things in place, and then we go off to do something else. It doesn't become exactly what you thought it was going to become. So for example, we were sure that this was going to be very popular with the people who were 50 or closer to retirement. It was the 25. Yeah, the 25, 29 year olds who took it up. And so we were completely wrong.
"We were completely wrong."
When it comes to pay, that’s something we could all be quicker to realize.
Instead of saying “that will never work here,” what would happen if you tried paying people more?
Trusted them to set their own salaries? Or even let them buy a day of their week back?
If you surprise people with generous pay, they might surprise you by rising to the occasion.
Next time on WorkLife…
Ashleigh: the hardest part is to stay the course, you know, when those tomatoes are being thrown at you.
Why bias training often backfires, and how to make progress on changing individuals and organizations.
WorkLife is hosted by me, Adam Grant. The show is produced by TED with Transmitter Media. Our team includes Colin Helms, Gretta Cohn, Dan O’Donnell, JoAnn DeLuna, Grace Rubenstein, Michelle Quint, BanBan Cheng and Anna Phelan. This episode was produced by Constanza Gallardo. Our show is mixed by Rick Kwan. Our fact checker is Paul Durbin. Original music by Hahnsdale Hsu and Allison Layton Brown. Ad stories produced by Pineapple Street Studios.
Special thanks to our sponsors: LinkedIn, Logitech, Morgan Stanley, SAP and Verizon.
For their research, appreciation to these scholars and their colleagues: Sendhil Mullainathan on the cognitive effects of scarcity, Jim Baron on surprise bonuses, Duncan Gilchrist, Mike Luca, and Deepak Malhotra on surprise raises, Natalia Emanuel and Emma Harrington on hourly raises, Dhuha Abdulsalam on idiosyncratic deals, Amy Mickel on symbolic pay, Sarah Brosnan on the fairness instinct in monkeys, Adrienne Colella on pay secrecy, Peter Bamberger on pay transparency, Gary Charness, Philip Mellizo, and Christian Bruck on self-set pay, and Richard Huseman on equity sensitivity.
RICARDO: I used to do two and a half hours per day of HighJump, etcetera. It was me and the bar, so I had in my whole life, the goal of jumping two meters, And I spent years and years at it and competed at the university state, et cetera, et cetera. And the maximum I got was 1.98, which was an inch less. And I, and I never got to two—and what did I think it taught me an enormous amount about the process is much more important than the outcome.