To address the “retention” problem, pharma companies are paying employees exorbitant salaries. The problem with that system is that people do whatever they need to to “hold onto” their high-paying jobs and become employees who are content not to excel. This is NOT what pharma needs.

Last week I briefly chatted with someone in the industry evaluating another job offer. Currently, he’s a Marketing Director, but his salary stunned me. He’smaking $240K plus a bonus.

Salary.com says the median salary for a Marketing Director is $173K, and the top 90% make $216K. With bonus, the Marketing Director at pharma is making over $300,000. To me, that is obscene.

I’ve always felt you should pay your best people well, but you can pay people too much. Overcompensated people tend to do whatever they need to hold onto that paycheck, even if it means doing things that you feel are potentially wrong.

Overcompensation leads to several problems that small business owners should be aware of:

You discourage the correct type of turnover. If mediocre employees are overpaid, why would they leave? Yes, you can fire them, but that comes with its own set of problems.

Your employees may begin to feel entitled. If you have a great year and give everyone a great bonus, chances are they will be upset the following year when the bonuses are smaller, or more “normal”. Overpaid employees believe that they deserve “it” and that you owe it to them. They won’t know exactly why, but they often develop a sense of entitlement.

They will not work as hard as they usually would. People who are already rewarded don’t work as hard as those who will be rewarded if they produce better or more results. Overcompensation often leads to mediocre work effort and quality.

Like it or not, employees share their compensation packages, so they’ll know if one is getting more than the other. If you pay one employee X for doing a job, you’ll need to pay the other employee X for doing similar work. If the first employee is overcompensated, the second employee will need to be overcompensated too.

Often, overcompensated employees, not recognizing the precariousness of their situation, build a lifestyle that cannot be sustained by less than their current income. Even if they know that they can replace their income, most behave as though they can. People stretch to buy the most prominent house for which the bank will approve a loan. They buy new cars with debt and leverage themselves to the hilt. Spending on extras chews up cash, and savings are minimal. Often, it takes their current income to service their debt.

Overpaid employees become complacent. They won’t seek alternative opportunities for advancement within your company, and they won’t pursue more challenging work that would stretch and improve their skills. Simply put, they don’t have to.

This isn’t good for pharma. Nobody can argue that changes are coming in healthcare that is going to affect pharma companies in a big way. The industry needs people who are willing to stick their necks out to prepare for these changes, not people who are happy where they are because of big paychecks.

A lot of people within the industry see the future and are trying to implement change, but for every one of those people, ten are addicted to their high pay and do whatever is necessary to hold onto that paycheck. That is a significant threat to our industry.