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Bursts of Color - Are Job Titles Important?
Several of you have called lately to discuss titles and hierarchy within your companies, which is consistent with the hot job market. In thinking about titles, I looked back at this Ben Horowitz blog post from 2011 that has held up well. Here is his answer to "Do I really need to spend time on job titles?" (Headline: Yes)
Employees will use titles to calibrate their value and compensation against their colleagues. If an employee with a title of Junior Engineer believes that she is a far better programmer than her counterpart with the title Senior Architect, this will indicate to her that she may be underpaid and undervalued. Because titles will be used to calculate relative value, they must be managed carefully.
Are Titles Cheap or Expensive?
If a new employee offers to join for a $20k lower salary in exchange for a higher title (say VP instead of Director), should you take that deal? Some founders will say yes, absolutely: the $20k is real money, while the title is free. Others will argue no way: her inflated title will cascade through the team, and she's going to come back asking for a VP-level salary next year. I think these are both right: titles are cheap in the short term, but expensive in the long term... so each company needs to choose the realpolitik that works as its situation evolves.
The Weakest Player on the All Star Team
As my kids have played on many sports teams over the years, I've heard them and their friends complain endlessly about whichever teammate gets a little more opportunity than the others thinks he deserves. For instance: who's the weakest player on Varsity, the All Star Team or in the starting lineup... and if he made it, why didn't I? In business, Ben Horowitz calls this The Law of Crappy People:
The Law of Crappy People states: For any title level in a large organization, the talent on that level will eventually converge to the crappiest person with the title. The rationale behind the law is that the other employees in the company with lower titles will naturally benchmark themselves against the crappiest person at the next level.
A Corollary for New Hires and Promotions
Organizations tends to be especially sensitive to titles when new hires or promotions are introduced. So if you hire a new VP with a comparable resume to a current Director, of course the Director is going to notice and be unhappy. The only way to mitigate this problem is to gradually raise the standard at each level, so that when you announce that next new hire or promotion, the crowd agrees that it was an obvious decision. In the youth sports analogy: only promote a new player to the All Star team if she's already at the median skill level of the current All Stars.
As the Organization Grows: Add Levels!
It's not an accident that Google has myriad levels of software engineer, or that Yelp has at least a dozen title levels in sales. By offering these finer gradations, the company takes some of the pressure off those big visible jumps, like the aforementioned one between Director and VP. The finer levels also allow the company to promote people more often, say every 18 months or so, which tends to generate a bunch of goodwill and help with retention.