There is a sizable elephant lurking treacherously in every CEO’s office, one that could conveniently be ignored if not for one single undeniable truth: numbers don’t lie. Hovering overhead like an Acme anvil, it is the last hold out in a new era of organizational transparency: the cost of people. 99% of businesses spend most of their money on it, and 99% of businesses don’t want to talk about it. Fear has a stronghold in this gladiator’s arena; it is nearly impossible to discuss such a topic levelheadedly. Not surprisingly, however, this particular breed of elephant does not appreciate being ignored. She will drag you into her swampy lair of multi-year deficits with the quickness of a thousand gazelles, and once you’re down there it is nearly impossible to emerge unscathed. But enough overdramatizing — you get the point. Beware these pitfalls, that you might end up in the mud:
1. More personnel = more success
Businesses often believe that having a larger staff is a stand-alone indicator of success. But quantity without quality is a recipe for disaster. If your organization has grown staffing by 25% but 75% of your positions are underpaid, you are likely not laying a healthy foundation for sustained growth. High staff turnover is common in these situations, which is costly and impedes cohesiveness. If you have an extra $50k next year, consider improving compensation packages for your best people rather than eeking out a new (underpaid) position. When you factor in taxes and benefits you’d be hiring someone for just over minimum wage. Why not improve morale, productivity and impact, not to mention the quality of your loyal staff person’s life, instead?
2. Budget deficits will be solved by new position A, B or C
I don’t have enough fingers (or even hands — and believe me, as a mom of an infant and a toddler I’ve got a lot of hands) to count the times I’ve heard someone on an organization’s leadership team say something like this: “If we could just finally hire a development person, we would make up that extra budget shortfall.” Think again! If your organization doesn’t have anyone in development full-time, and already has a deficit, you likely can’t afford a development person who will actually be able to impact your bottom line. At the end of the day, experienced fundraisers at market rate are usually too expensive for small organizations. If you are looking for a silver bullet, finish reading this post instead! Kidding aside, don’t get me wrong — fundraising work is critical. It just needs to be activated in the right ways at the right times, and scaled to the organization’s size. In fact, many businesses make this mistake with other positions as well. Small organizations would do better to bring on expensive expertise in the (pro-bono) form of board members and volunteers. At the end of the day it’s a bit of a catch 22: the amount they can afford just can’t get them people who are experienced enough to help them realistically afford more.
3. Vacated positions need to be replaced as-is immediately
A vacated position is a golden opportunity to reevaluate the staffing structure. Use it wisely! Don’t jump to fill the position immediately unless you know it is absolutely necessary as-is (i.e. night security guard). If the role is a core position in programming, fundraising, or administration, chances are there are several options worth considering. Perhaps a great employee is looking for a chance to take on something new, and it makes sense to create a position that combines the two roles (see above — this might end up costing the organization less as a bonus). Or perhaps the role wasn’t optimized to begin with and volunteer support can fill the gap. Regardless of what is done with the vacancy, it is critical to recognize that it was likely caused by some sort of dissatisfaction, either on the part of the employee or the employer. Take the opportunity to investigate what went wrong: was there not enough interesting work? Too much work? Did the actual job description line up with the written one? Allowing time and space to be strategic about replacing positions will often surface new solutions to systemic problems.
In my work as a financial management consultant I often evaluate business models for indicators of future growth and sustainability. It is not uncommon to see a personnel line item out of scale with the organization’s annual operating budget, managed by a leadership who is understandably scared to address it. Even though it is hard, escorting the elephant out of the room on this is inextricably tied to your success. Here’s why I suggest putting on your big girl (boy) pants:
A wise leader spends less than they earn, and people want to work for a wise leader.
If no other rule will ever apply to business management, let it be known that successful organizations always spend less than they earn. There is no way around this very basic principle. If your organization regularly spends more than it earns, it is depleting its resources and, ultimately, its impact. No one wants to work in a shrinking business, so eventually momentum will nudge resources (and impact) out the door. Don’t let this classic tale of slow business death be you! On the other hand, a strategic leader who keeps morale high and personnel costs within a surplus budget will build human, financial, and energetic reserves.
Out-of-scale personnel costs often go hand-in-hand with low staff morale. If personnel costs are not scaled to your organization’s programming, your people will either be bored or stressed. Neither one builds morale, creativity, or resources. Find your organization’s sweet spot. Your programs need to be well-staffed, and each staff member needs to be fully engaged but not so much that they withdraw or underperform due to stress. This is one of the most important jobs of a CEO. And living in that sweet spot won’t just give you the warm fuzzies at night; it will translate to efficiency, growth, and impact.
Opening up space for these conversations opens up new business opportunities and innovations. It takes courage to talk about the cost of personnel. The underlying fears are simple and understandable: fear of others’ anger, fear of guilt, fear of financial repercussions — the list goes on. When you do summon the courage, though, you lead by example and set the stage for others to be brave and honest. Out of a trusting environment, new ideas can be born. This forms the foundation of strong workplace morale and sets the stage for the creativity and innovation essential to a thriving organization.
Let us talk regularly about the cost of our people, especially during times of change. Let these conversations be joyful, graceful, and wise (think Pema Chodron, not George Clooney). If we do, we may break through the overworked-and-underpaid narrative, once and for all.