Talent Nurseries

Hi Team,

Shortly after the 2008 recession, my colleague asked our CEO the toughest question of all, "do you think there'll be raises this year?"

Having been burnt badly in 2008, our customers, the Big Banks, suddenly cared a lot about the risk management software we made. And if they didn't personally care, the government made them care. One way or the other, they were buying everything we made.

But even though the money was pouring in, our company had frozen all raises since the 2008 recession started, and we were now in 2011.

But we had hope.

We knew our colleague planned to trap the CEO in that lunch and ask that tough question.

And the CEO, who was paid millions at the time*, said:

"What does it matter if there will be raises this year? Everyone knows that money is not a motivator beyond a salary of $75k a year."

When our colleague, a young man in his mid-20s, came back to us from that lunch and gave us the CEO's response, we were stunned. Even kids with peach fuzz like me were frazzled, never mind what the wiser 30 and 40-olds must've felt.

It was like no one had told the CEO that it wasn't 2008 anymore. But the market was about to teach him and our firm a valuable lesson.

The market was paying a hell of a lot more than $75k a year for engineers like us. And the other messed up thing is our small team of less than 15 saw what we were billing the Big Banks. Our company billed Banks millions for our work. And Banks were paying millions more for software licensing fees from our firm. And even more millions for multi-year support contracts from our team. And yet there would be no raises that year again.

Within a year of the CEO saying that money is not a big motivator, over half of the incredibly successful risk software professional services group was gone. Our team was one of the company's most profitable groups in 2011. A big reason our colleague was invited to lunch with the CEO was that our group was important.

But it's not free lunches or lip service that keep people.

And since the CEO refused to get us raises, the market would take care of us. I more than doubled my salary after landing my first external offer; the Big Banks were crazy hungry to hire software engineers directly at the time. Some former colleagues doubled or tripled their salaries externally too.

Of course, it's unfair to blame just our CEO at the time. He is not unique; leaders play hypocritical games like "money is not a motivator" all the time.

The other messed up thing is after losing so many people, these types of companies backfill with juniors. It's all they can hire with those salaries. I saw many managers build up juniors only to watch them walk out the door in a year or two and double their salaries elsewhere.

Many of these managers had their hands tied by firms and CEOs that did not understand how engineering compensation was moving.

In the early 2010s, the Big Banks, and Big Tech, as it would soon become known, were pleased to pick off excellent engineering talent from software firms like us. Underpaying software companies became talent nurseries. Juniors would go into them right out of school, and outside firms plucked the best people after a year or two of maturity.

The song "In The End" by Linkin Park is the theme music for engineering managers building up juniors at these places:

This phenomenon of firms becoming talent nurseries has never ended, at least not as of 2022.

And the phenomenon of tech talent nurseries became even more pronounced when even the Big Banks became talent nurseries for Big Tech.

In fact, the Big Banks fell so far behind in engineering retention that they even became talent nurseries for cash-flush, innovative and fast-growing startups to pluck from. Some of our best hires at Jet were disgruntled engineers from the Big Banks.

The point is that you never want your team or company to become a talent nursery for someone else.

Knowing what a talent nursery looks like, made my ability to hire people a lot easier.

And when I had my own team to manage and my own juniors to grow, I was determined to never, ever, let that happen to me.

One way I combatted becoming a talent nursery is I made damn sure my team members were learning and growing all the time.

And the best leaders and managers I worked alongside that were able to prevent their teams from becoming talent nurseries for others all had this same attitude. No Lip Service. Full transparency. And a willingness to lay it all on the line for people that deserved it.

A strong lesson came from one of my mentors, who even pre-prepped his resignation letter in case his conversation with the CEO didn't go well for what he was about to ask for his people.

I adopted the same attitude.

Growing people to me meant going to bat for them to get raises in calibrations. Or to get promotions in promotion cycles. It meant fighting with and even shouting at other managers if I had to. It meant sending emails begging the EVP and the CTO before calibrations like a politician before an election. All on my people's behalf. It meant pulling up all the support from the business I could muster.

Growing people meant once they did their part, I had to do whatever it took to get them what they deserved.

My mindset before these conversations was that it didn't matter if I lost political capital. It didn't matter if I was pushed out. If that happened, then that wasn't the place to be anyway, and it was destined to be a talent nursery soon.

Yet, so many managers take the non-confrontational route only to wonder why they are bleeding people.

I know what you are probably thinking, "look at this guy Louie, tooting his own horn." And I did consistently have one of the most promoted teams at the companies where I managed people, but it wasn't all out of "selfless love."

I knew losing people I had invested in would devastate my own goals and my own teams. Not worth being around for that. As Charlie Munger famously said, "show me the incentives, and I'll show you the outcomes."

I never wanted to lead a talent nursery and be stuck in an infinite loop of "In the End" by Linkin Park, and in my strong opinion, neither should you.