Think about the following situation. The following are axiomatic.
1. You have the chance to hire any number of people on Earth - no matter what number you write down, that many people will end up on your payroll with the following terms:
2. they will have a net value of $1 to the company per year (net of every kind of cost, period), starting immediately and with no capital requirements, and no hidden costs of any kind.
What number should you write down? How many people do you need on those terms?
The answer is: even though each person brings a net of $1 per year only, the assumption stated says that there are no capital requirements and you can hire "any number of people on Earth" with no costs of any kind.
There are 7 billion people on Earth: you should write down "7 billion" for the number of people you want on those terms, making $1 from each one.
You now have a company that nets $7 billion per year. By comparison, McDonald's has $5.45 billion in annual net revenue available to common shareholders.
This was an exercise in what your demand should be on the margin with no other costs but only a net value of $1.
Now we move to the real world. In the real world, none of the assumptions listed are correct.
Employees have capital requirements. You only have the ability to hire so many. Luckily, they net you more than $1 each in value.
So, in the real world, we have an interesting situation. We want employees at practically any cost, but could reduce our twenty-person firm to annually netting us just twenty bucks a year, if we pay everyone as much as we still want more people at.
The truth is, we want to pay people as little as possible to retain them. How far above or below their PERSONAL market price (what they can make elsewhere) and how far above or below the market price for the position (how much people will fill your position for) their salary is for, will determine our strategy, and, crucially, how far each of these things is from their net value to you, will determine this strategy.
If a qualified neurosurgeon is working at a McDonald's for whatever reason, then almost no money (e.g. increasing his wage by 8x) will retain him. But presumable an 8x increase in his wage completely eradicates his net value, so it's not even worth considering.
On the other hand, if a qualified CMO is working as your VP of marketing, then presumably a very small increase in wage will bridge the gap between his personal opportunity cost (working elsewhere) and his current wage with you: whether you should do this depends on how much value you are getting from him.
Bottom line: if you are getting huge amounts of value from employees, you should consider paying them their replacement cost if you would rather replace them (McDonald's neurosurgeon example), or, if they are performing better than their replacement would, perhaps a fair strategy is to pay them a portion of their extra net, above their replacement cost.
In other words, if an average VP nets you $300k and this guy nets you $500k then you can pay him an extra $100k over what you would replace him with.
On the other hand, if an avarage VP nets you $10k per year, and this guy is weould be netting the same at the market rate, but is working for $40k less than the VP market rate, and therefore netting you $50k, then almost the entiretly of your net from him comes from his willingness to work for less than your replacement wage.
In this case, I don't think it makes sense to preemmptively give him all your profit.
I guess the correct behavior depends on a number of factors that are not explicitly stated in the article.
The take-home lesson might be "Pay attention to market wages, and how much value each employee is bringing versus what replacing him with someone else would bring."
Bonuses, in my opinion, are a really, really, really good way of dealing with situations where someone is bringing far more net value than their replacement would, and also has a high personal opportunity cost due to their talent.
In this case, by sharing the huge extra revenue, you can increase his wage only in proportion to how much better he is than someone else you would replace him with. This deals with his opportunity cost and retains him, presuming he has enough tools at his disposal to make you as much money as he can make someone else. (The neurosurgeon can't make McDonald's as much money as he can make a hospital, no matter what he does. Therefore, a bonus sharing program won't help that much. On the other hand, a bonus at a hospital would help immensely, if he could also be a director at a different hospital...)
You might not have read the article :) It doesn't say "don't have that conversation - just let them go", it says "preemptive strike that conversation! Pretend they came to you with an offer, think about what you would come up with to try to retain them [implicitly: you should make a counteroffer in this situation], and then go ahead and do so and give that to them for free even though they didn't even come to you!"
It's pretty much the exact opposite of what the title leads you to believe :)
Context matters hugely. Here is their full Linking section, which does not include anything from the title:
"
Periodically, links may be established from this Web Site to one or more external web sites or resources operated by third parties (the "Third Party Sites"). These links are provided for your convenience only. In addition, certain Third Party Sites also may provide links to this Web Site. None of such links should be deemed to imply that Victoria's Secret endorses the Third Party Sites or any content therein.
We do not control and are not responsible or liable for any Third Party Sites or any content, advertising, products, or other materials on or available through such Third Party Sites. Access to any Third Party Sites is at your own risk and we will have no liability arising out of or related to such web sites and/or their content or for any damages or loss caused or alleged to be caused by or in connection with any purchase, use of or reliance on any such content, goods, or services available on or through any such Third Party Site.
"
It seems fine to me. The text in the title actually is the following special section:
"
Special Notice
We have a no-tolerance policy regarding the use of our trademarks or names (e.g., of Victoria's Secret, Victoria's Secret Pink, or Pink Nation) in metatags and/or hidden text. Specifically, the use of our trademarks or names in metatag keywords is trademark infringement, and the use of trademarks or names in page text, metatags, and/or hidden text for purposes of gaining higher rankings from search engines is unfair competition. Linking to any web page on this Web site is prohibited absent our express written permission. Associating or juxtaposing our Web site or its Materials (e.g., through framing or inline linking) with advertisements and/or other information not originating from our Web site is expressly prohibited.
"
This seems quite reasonable to me. Apparently, spammers must be getting their pages higher for searches of Victoria's Secret than the site itself is at.
I think the policy is perfectly reasonable in context, and I think anyone reading this knows exactly what VS is talking about.
Suppose someone (highly qualified, not from the startup world however) can tweak your marketing message for a couple of weeks (i.e. work on your startup for 80-150 hours intensively) and as a direct consquence get you an audience of millions, because your message is now awesome. This person doensn't care about startups.
Say you are pre-money. How should you pay for this person's time?
You would think, if this person can really work for two weeks and give you a company that is worth seeding at a high valuation (due to traction), which also becomes a good signal and thereafter with the company's fantastic traction, money, and engaged audience, it has fantastic growth prospects - but without these two weeks will simply languish as another "project" - then a two percent stake with no cliff whatsoever is a no-brainer.
Honestly, who boards a plane "for fun" in this day and age? We know it's a hassle. Where is your letter of interest from an investor? What other reason could you possibly have for travelling when you are a "founder", meaning you are unemployed? This just does not add up.
The chances that one "founder" is really travelling instead of creating a company are miniscule compared to the risk that this is a cover story and this layabout intends to blow the plane up.
I hope you will agree that the only reasonable course of action is for you to be jailed until you can come up with the truth. Honestly, dia80, why would you even fly?
:-P