How to attract employees is not about the fridge full of ice cream.
During my last semester at the University of Sao Paulo, there was a book causing a gigantic corridor buzz. The name of it was Thinking, Fast and Slow, by Daniel Kahneman It covers, among other themes, human cognitive biases. One of the most discussed subjects is loss aversion. It was a concept essential later in my entrepreneurial journey to understand how to attract employees.
To understand it, imagine how unpleasant is to lose $50 in the street. Rate it on a scale from 0 to 10, where 10 is the most unpleasant situation possible. Now imagine finding $50 on the sidewalk. Rate it on a scale from 0 to 10, but now 10 means the most pleasant situation imaginable. Often the first situation will have a grade higher than the second. This synthesizes loss aversion. It is the fear of losing a certain amount being higher than the joy of finding the same amount elsewhere.
This notion comes to my mind when I see startups still far from making their first profitable trimester investing in pricey rewards to lure new employees. Things like unlimited holidays or top-tier gym memberships.
If their CEOs considered the concepts of cognitive biases, they would realize that expensive free perks have 3 tremendous downsides.
1. They lose their motivating power across time, since people take it for granted.
2. They are replicable. If a competitor wants to steal your talents, they can just copy your policy of sending interns for “conventions” in 5-star hotels.
3. When the company faces adversities and needs to cut costs, removing the rewards will be more destructive than it was constructive to implement it.
This third point we can attribute to loss aversion. It is what happened when Upload, a virtual-reality company from Los Angeles, needed to cut one unusual (and expensive) perk. They had a tap free-flowing Kombucha — an expensive fermented tea from Manchuria, trendy in the Silicon Valley. As their founder, Taylor Freedman, explained in an interview to CNBC:
People would drink five glasses a day. It was $3,000 to $4,000 a month to have Kombucha on tap, so we had to shut it down. It was a big hit to the morale of the community.
You can avoid similar situations by considering the 3 points mentioned above and answering: Can we pay for this benefit during a crisis?
Some benefits are costly, but they pay for themselves and relate to the firm’s core business. An example is a financial incentive Airbnb gives to employees to travel and stay in, well, Airbnbs.
Once you decide which benefits to offer (or not) to prospective employees, the next step is to pick what you will ask during the job interview.
Socio-cultural adaptations for Interviews
Interviews are not the same everywhere. Here I bring the findings of the illustrious Dr. Geert Hofstede. His indicators help to outline expectations between employers and candidates. Before asking about how to attract employees, discover what they want to know about you.
Societies with high long-term orientation present candidates that prefer to know the career and development chances, while low-term orientation prospects will favor bonuses and short-term remuneration.
The same is valid for other Hofstede factors like Uncertainty avoidance. Risk-taking societies like the US have candidates more fond of variable wages, while risk-averse cultures prefer a stable income.
The economic situation also plays a big role in how interviews happen. When I was in South America, in a country with a two-digit unemployment rate, even qualified candidates had a firm stance of promoting their feats to win the job. This cultural aspect made it easier for interviewers to know about their previous experiences and achievements.
On the other side, when I arrived in Warsaw, the unemployment rate was below 3%, one of the lowest in Europe. I needed to build my team. With plenty of opportunities available everywhere, the interviews became sessions promoting the job for the candidates. This is not a problem per se, since the skill to promote your business has ample applications, like future capital raises.
Hire on time.
According to Forbes Magazine, two of the biggest money-wasters for new companies are over-hiring and early hiring. The first means employing more people than you need for the early stages of a project. The second means contracting too soon.
Both problems derive from too optimistic planning and the non-existence of buffers — time-reliefs to accommodate delays or below-expected business results. It happens when executives overthink about how to attract employees.
Hiring too early will waste money, since you are paying for a person who may not even have a desk. It also makes your business look unprepared and amateurish for the eyes of a recently built team.
Over-hiring is even worse. Having more people than you need means less work divided into more brains, which underutilizes talent capacity and makes your entire business run in slow-march. You can solve it by letting people go, but this may damage the group morale and create a crisis atmosphere.
Bottom line: do not hire people for your team based on your goals, but based on your most likely scenario.
Hire Slow, Recognize Fast
Another mistake I made — you may ask how I did not go bankrupt after so many mistakes — was to hire in a hurry.
Entrepreneurs know this is not wise. Still, one day either you have excessive demand, or a staff leaves and you enter the hiring rush. You rush to interview a few candidates. Even none of them matching your company profile (or your company matching their aspirations), you decide to employ one.
Few weeks after doing the mistake I described above, one of the best members of my team gave me a bold signal I messed up. She just asked Levi, where do you find this kind of people? She did not mean it in a good way.
Take special care when you already have a committed and fine-tuned group. To put in your team a new member that does not match the spirit of the rest can be poisonous. I am not talking about distinct personalities here, but about different levels of commitment.
Once you find a candidate matching your team’s standards, recognize him fast. During the first weeks, he or she will seek to understand what is right and what is wrong. Positive reinforcement is crucial to guide your new member and speed up his practice.
Render to Caesar the things that are Caesar’s. Have Skin in the Game.
It is easy to start a fiery discussion regarding the positive or negative impacts of coffee on the human body. Debaters will find several scientific articles and researches to attack or defend caffeine. A similar phenomenon happens when we discuss remuneration and how to attract employees.
One of the best books I read on the subject was Freedom from Command and Control: Rethinking Management for Lean Service, by John Seddon. The author makes a great case for fixed remuneration. Contrarily, Silicon Valley startups often have strong policies of variable remuneration or equity bonus for employees.
How to decide the most appropriate method for remuneration?
There are situations where equity bonuses instead of fixed wages have dubious efficacy. A junior manager, in a corporation with thousands of employees, unlikely will see his higher efforts increase the company shares. There is no incentive, in this case, to seek a superb performance, because there is no benefit for his pockets.
In new, smaller companies, the work of every single member has a visible impact. A remarkable performance of a single team can reflect in the entire company result. Here, it makes all sense to go for equity.
Not always is possible to offer equity to your first employees. In my case, it was not viable, since the paperwork for it would be too expensive. Still, it is possible to offer a remuneration package with more skin in the game for every team member, where everyone earns more if the results are good.
Quoting a famous Brazilian movie, who wants to laugh, must first make others laugh.
If you are ready to go for the next step and start your business, take a look at this article about the types of business risks that we prepared for you, and the damage that agency problems can cause for your enterprise.