W.L Gore let's you pick your title and everyone is happier

One of the things that we're tempted to do in the early days of a business is to hand out titles. That's especially true when you're limited in how much money you can spend even as you try and recruit senior level people from other organizations. I have to admit, I find it funny at times that people get so attached to titles, but they are really important to people. And some are willing to take less money, at least in the short term, to get a bigger title. So, if you're trying to recruit a senior director to join your company, it can make sense to lure them by offering a VP title. While that might seem like a low-cost solution, it can actually create some unanticipated problems down the road. Let me explain. 

Executive Compression
I've written before that companies can outgrow people. Meaning that as the company grows, it's demands go beyond what an executive can deliver on. But that's where handing out titles can get you into trouble. If you have a VP who is falling behind, for example, you don't have a lot of options to hire someone in above them unless you're willing to elevate that next person to the CXO suite--like COO or CMO. But then you're really compressed at the top in terms of your executives and that can be an issue with a smaller firm. It's like you're IBM where you have as many executives as front line employees--which can create some organizational headaches. Banks are notorious for this, making everyone a Vice President. 

Compensation Issues
While you might be able to use titles to convince someone to join the company for less salary, that can be short lived. It's easy enough these days, for example, to see what a VP of sales is typically paid. While the title might have been nice for a while, people will eventually want the money. So, if you've aggressively handed up VP and executive VP titles to land talent, you might find that there is a longer-term liability you'll be forced to pay and you'll be paying VP money for non-VP talent. 

Limited Options if there are Problems
So what happens when you have someone who isn't keeping up with the pace of the company and is also asking for an expensive salary? You want to keep the person, but you're backed into a corner because of their title. Most people are too embarrassed to take a lesser title or accept a reduction in pay. As a result, you might be forced to let them go--if they don't decide to leave on their own first.
One of the strategies you might be able to use to avoid some of these issues is that you can bring someone in at a lesser title with the promise that, if they perform over six months, they will get promoted to the higher title. That can give you some more options when it comes to your mix of titles and you will be promoting known commodities rather than a new hire. 

So, when it comes to thinking about handing out titles, use caution. Try and understand the real costs that can come with them ahead of time. If you really want to get innovative, let people pick their own titles and just pay on the value they create, like W.L. Gore. 
 
Jim Schleckser
jimschleckser@incceoproject.com