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Negotiate with Employees As If They are Outside Vendors

Posted by Tulgan, Bruce at Tuesday, 12/18/2012 1:30 pm
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2.2 from 9 votes
If you are really serious about moving into the new economy and winning the talent wars, stop paying people right away. You heard me. Stop paying people and start buying their results. Bring in your purchasing agents to run seminars for the compensation team. Start reworking the compensation system, fast. More important, have the purchasing agents teach every supervisory manager the basics of purchasing results in the free market. To survive in the new economy, every manager is going to have to get very good at negotiating with employees as if they are outside vendors. Managers simply must start establishing clear deliverables and deadlines with every employee every step of the way, agree on fair prices in financial and non-financial compensation for every milestone, and then start paying vendors of talent (formerly known as employees) when they deliver and only when they deliver. This is also going to short-circuit your performance evaluation system. The only evaluation necessary will be the ongoing review of deliverables at every milestone and the daily performance coaching along the way.

It’s a simple idea: Employment relationships are transactional by nature. They always have been. But instead of being slow moving, long-term camouflaged transactions, as they were in the workplace of the past, now the transactions are fast moving, short-term and fully exposed. Free agents are negotiating with managers every day and they are driving a hard bargain. If you keep trying to draw your management power from your position on the organization chart, you are going to be played for a fool by free agents in the new economy. Here’s why: You will be constrained by trying to make a long-term deal according to the norms of a limited system (your company’s compensation system), while the free agent will have all the options available every day in the free market.

Remember markets are efficient. But only if they are free and fluid and if the actors deal on the basis of good current information. The financial bidding contest only undermines the interests of employers if the seller (talent) is free and fluid and acting on good current information and the buyer (management) is stuck in an old rigid system. Paying people the market value of their work, whatever the market value is today, is precisely how you can get yourself and your company out of bidding contests that don’t work and into bidding contests that do.