Noncompete clauses are often hard to enforce, but sometimes they still make sense. Heck, youcan't really keep a person from making a living in their chosen field. But, a company has to be able to protect itself from employees who may steal customers, ideas, staff members or worse.
Noncompetes are not only hard on HR and legal departments; they can also be an issue for compensation professionals. At the most basic level, comp pros are paid to at
tract, motivate, retain and engage employees. For nearly every great compensation feature or extra dollar that helps there is usually some other factor that detracts from the cause. Sometime there are so many negative factors it becomes almost impossible for us to do our jobs. Companies with a terrible work environment or very restrictive pay practices are often forced to pay far more than their peers just to compete for similar talent.
But, how much additional pay is enough to justify something as punitive as a noncompete clause? One company says minimum wage is pretty close to enough. It also considers its competitors to be nearly every company in their wide-ranging business sector, and those businesses in a similar location that sell a small percentage of their key product. More impressively their noncompete applies for a period of two years after you leave their employment.
Now, I love me a good Jimmy John’s sandwich. Those things are pretty darned delicious. They have that bread part, the meat part, the cheese part, the produce part and the seasonings…all of the good stuff. But, I find it hard to comprehend how much EXTRA they must pay their employees to sign a noncompete that restricts them from making sandwiches elsewhere (or even working at a place that may sometimes sells sandwiches) for two years after they quit. To read more about this issue check this out.
Now, I admit that I have not spoken to the Jimmy John’s compensation department directly to confirm the story linked above. I guess it’s because I would be sincerely depressed if I found out that the company had such a rule and did not feel it had to pay an extraordinary premium. But, I do know that other companies have similar provisions going deep into their organizations. When so many companies are doing their best to find better ways to pay, how can there be companies that are trying harder to keep people from working elsewhere than they are to motivate employees to perform well in their current position?
What warrants a noncompete at your company? What type of compensation do you pay to make such a rule palatable to a new employee (or do you just hope it doesn't get noticed until after their start date)? Regardless of the obvious issues and costs with trying to enforce such a rule, does it make any sense to counteract every other component of your compensation program to put a noncompete in place for rank and file employees?
I would love to participate in a discussion with Compensation Café readers if I am way off base. If I am correct in thinking this type of noncompete is over the top, I would also love to hear from you. Is a noncompete like this so noncompetitive that it should never be considered in the first place?
Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. You know compensation communication can always be better so get your copy of the new book: “Everything You Do in COMPENSATION IS COMMUNICATION.” Written by Ann Bares, Margaret O’Hanlon and Dan Walter. Dan has also co-authored of several other books you may be interested in including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and “Equity Alternatives.” Please connect with him on LinkedIn and follow him on Twitter at @Performensation and @SayOnPay.