Companies shouldn't reward loyalty, especially when that means punishing performance. Loyalty is only meaningful in the sense that your company-specific knowledge makes you more valuable to the company.
All other things being equal, a 25-year-old who just joined the company and automated 5 people's worth of work is worth several multiples of the 35-year-old analyst who'd been at the company for 10 years and was doing one of the (now automated) jobs. Yet most companies will pay the 25-year-old significantly less. This is just plain dumb and irrational, and encourages top performers to go elsewhere.
Loyalty is only meaningful in the sense that your company-specific knowledge makes you more valuable to the company.
I couldn't disagree more. Loyalty is its own benefit that's worth compensating people for. I value people who come into a group and do more than just contribute a bunch of code. I value people who contribute to the culture and the framework of the ongoing enterprise.
Furthermore, I want newcomers to see how I treat the current employees with respect and reward for being contributing parts of the team not just this past week, but for years.
I'm not at all saying that just occupying a seat in the office should get you rewards. It shouldn't. But occupying the seat AND being productive while you're there is a benefit to me as a company founder.
Give me a competent employee whom I can rely upon year after year vs some hotshot code slinger who is here today and gone tomorrow.
I call it the "Mike Krzyzewski" team building strategy.
It sounds like we actually agree in practice and I've just heard the word "loyalty" used differently from the way you've heard it used. Apologies if I used the wrong definition, and let me try to clarify my point:
I completely agree that contributing to culture and the business is valuable. What annoys me is how much a lot of companies value seniority over anything else. The attitude of "Well, X is older and has been here longer than Y, so they should get paid more" is incredibly prevalent even in the USA. Especially in tech-heavy jobs, I've seen plenty of cases where someone might contribute 5x or 10x as much value as the average person in their position...and receive a 10% higher raise as a result.
People are lazy. Calculating seniority is easy and "objective", not controversial; in fact, it's so linear you could even write a program to automate it (I bet somebody did just that). Evaluating performance or actual returns to the business, that's hard; the metrics are often very subjective, and people will start arguing. Rule #6582 of the Safe Manager: Don't Give People Excuses To Argue. So seniority it is.
This was unfortunately exacerbated by Trade Unions, which needed something "objective" to force owners to pay up and keep members happy, so they built their demands on this sort of easy metrics: seniority, hours of work, etc.
I'm sure if you could find a generic way to calculate productivity in an uncontroversial way, managers and unions would jump on it, but in most cases there ain't, so seniority it is.
What you're talking about is seniority, not loyalty. Someone can have 30 years at a company and still be not loyal if their heart's not in it, they plan to jump ship, they take advantage of others, they embezzle, etc. Seniority is length of time employed at the company. Loyalty is investment in and contributions to the work community.
And that kind of loyalty makes a company a nice place to work, because what you have is a community of people who are invested in each other.
There's also a lot to be said for people who loyally provide/demonstrate leadership (especially when it's not part of their job description) as a core value, thus contributing to the improved performance and morale of others whose jobs were not automated our of existence by the hotshot codeslinger. And maybe imbuing some leadership in others, as well. Something else that cannot be done by here today, gone tomorrow folks.
Companies should reward loyalty because it is expensive to hire and train new employees.
It's possible to do both, using two tools: promotions and performance bonuses. If the 25-year-old is more of a rock star than the 35-year-old, promote the 25-year-old. Or, give them a nice fat performance bonus for that particular project.
But what is going to keep the 25 year old there for 10 more years? You can only promote someone so much. This is why companies provide merit raises within positions, and how a 35-year-old ends up making more than a 25-year-old for the same job.
Assuming they're happy with you they should pay the market rate - what it would take to replace you in the job you do at the level you do it.
If they do that you shouldn't have to worry bout being under paid, they shouldn't be worried about over paying you and for most roles it's pretty easy to work out.
Plus from a selfish point of view anyone in IT would have done better than inflation over the past decade.
All other things being equal, a 25-year-old who just joined the company and automated 5 people's worth of work is worth several multiples of the 35-year-old analyst who'd been at the company for 10 years and was doing one of the (now automated) jobs. Yet most companies will pay the 25-year-old significantly less. This is just plain dumb and irrational, and encourages top performers to go elsewhere.