I just discovered How to Start a Startup, which is a series of videos published by Stanford University on YouTube with some outstanding speakers. The problem is that the class videos are so great, I have a hard time turning them off. Case in point, this week I watched Ben Horowitz’ lecture: How to Manage.  Ben is a rap enthusiast, and venture capitalist in Silicon Valley.  He offers excellent points and perfect examples about how managers have to analyze difficult requests from employees from many different perspectives. Definitely worth devoting the 50 minutes of your time to watch (embedded below). It is by far the best presentation on management I have ever listened to, and I’ve had my share of management classes (by the way, Ben’s book, The Hard Thing About Hard Things is a great read also).

In the lecture, Ben discusses the very difficult situation of addressing an employee’s request for a raise. Ben’s point is that the easy way out of the difficult managerial decision is to simply agree to the raise. This is the easy way out, everyone in the room is happy, the manager is liked by the employee, and the employee is obviously happy.

However, as Ben mentions, this can create other issues across the organization:

However, you knew there was going to be a however, you have to think about it from the point of view of the employee who did not ask for a raise. They may be doing a better job than the employee who did ask for the raise and in their mind they are going, “Ok, so I didn’t ask for a raise and I didn’t get a raise. They asked for a raise and they got a raise. What does that mean?" One, you’re not really evaluating people’s performance. You’re just going, whoever asks, gets. That means I either need to be the guy who asked for the raise, though that’s not how I feel. I do my work and I don’t necessarily want to ask for a raise. Or I just need to quit and go to a company that actually evaluates performance. You can really make the person who doesn’t get the raise feel pretty pissed about it. Don’t think that when someone is walking through your company doing the "Shmoney Dance," that other people aren’t going to notice.

Not familiar with the Shmoney Dance? Click here.

In addition to Ben’s point that CEOs or supervisors responsible to determining pay rates need to have and follow a formal review process for determining raises, it is important to note it would be bad management to ask an employee to keep their pay details confidential because doing so runs afoul of California law.

This leads me to point out five areas of employee compensation or off-work conduct that cannot be regulated by an employer under California law:

  1. Employers cannot prohibit employees from discussing or disclosing their wages, or for refusing to agree not to disclose their wages. Labor Code Sections 232(a) and (b).
  2. Employers cannot require that an employee refrain from disclosing information about the employer’s working conditions, or require an employee to sign an agreement that restricts the employee from discussing their working conditions. Labor Code Section 232.5.
  3. Employers may not refuse to hire, or demote, suspend, or discharge and employee for engaging in lawful conduct occurring during nonworking hours away from the employer’s premises. Labor Code Section 96(k).
  4. Employers cannot adopt any rule preventing an employee from engaging in political activity of the employee’s choice. Labor Code Sections 1101 and 1102.
  5. Employers cannot prevent employees from disclosing information to a government or law enforcement agency when the employee believes the information involves a violation of a state or federal statute or regulation, which would include laws enacted for the protection of corporate shareholders, investors, employees, and the general public. Labor Code Section 1102.5.