What would it cost to replace you?

The basis of my philosophy on compensation and promotions is based on something I learned as a baseball fan. I'll try not to bore you with the details. Internet baseball analysts came up with the concept of replacement level, a level of performance that is easy to replicate by promoting a minor leaguer or signing a readily available player. A player's performance can then be described relative to this level – creating 4 more wins (the measure of value in this system) than a replacement level player is really good, 8 is astounding. If a player is paid more than the league minimum and they don't create any wins above replacement, it's bad.

I found this to be so conceptually useful that it led me to the heuristic that I always turn to when it comes to compensation and promotions. I have repeated it so many times that people tell me that when they reference it, they often get the response, "Sounds like you've been talking to Rafe."

The heuristic is that we should level and compensate people based on what it would take to replace them if they left. A senior manager you'd have to hire a director to replace should be promoted. Same thing with a mid-level engineer who can reliably produce the output of a senior engineer. You should promote them. By the same token, if you have a strong senior manager who you could replace with a non-senior manager based on the scope and complexity of their role, you should defer the promotion and find a way to make their role more challenging instead.

This lens depersonalizes things in a useful way. Just as with baseball players, it's hard to evaluate people's capabilities objectively in any role. Good managers are fans of the people on their team and should be advocating for them, and of course many people are also fierce self advocates (as they should be). Thinking through what it would take to replace someone's contributions is a useful model for evaluation. It's also helps managers who are confronted by the argument that a person could earn more somewhere else – the more important question is how much it would cost to replace that person.

It can also help identify cases where a manager may have set someone up to fail. If someone is performing below replacement level in their current role, there's a problem that needs to be fixed (ideally by helping the person be more successful).

For folks who are advocating for themselves – arguing about what it would take to replace you is more likely to be effective than arguing based on what you could command in terms of salary or level on the open market. Anybody who interviews well can parlay their current job into a higher paying job. You'll be in a stronger position if you can make a compelling argument about how expensive you would be to replace.

What this model doesn't capture is potential. Someone who's likely to create much more value in future years than they are right now is much more valuable to retain. This is why managers need to find ways to continually invest in folks with the highest potential, and to invest in the growth of the people they manage. While this framework may work fine for a discussion about compensation right now, there's a lot more to a positive sum long term relationship that benefits both the organization and the person.

If you're interested in Wins Above Replacement, this explainer from Baseball Reference is a good place to start.