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<p>Oh, I don’t know - maybe we can ask why the same doesn’t happen to the private equity firms and hedge funds. Why don’t their clients go to the lowest bidder? </p>
<p>Or let me put it to you this way. Google is an engineering company. It offers relatively high pay (at least for engineers). It also offers obscenely munificent benefits - i.e. free gourmet food, free concierge, free transportation, free gym, etc. etc. That is why it is the #1 ranked Best Employer to Work For as determined by Fortune Magazine. </p>
<p>Yet its real customers are not you and I, but rather are the advertisers (i.e. the firms buying all of the advertising that appears next to the search results). You don’t really hear them taking their business to the lowest bidder, even though Google’s rates are relatively high. Heck, Google continues to gain advertising market share every quarter. </p>
<p>The point is, there are many companies who have figured out how not to compete on price, but rather by selling quality and image. The Apple Ipod is not really “better” than other MP3 players out there, yet Apple can charge several times what its competitors do, and still maintain dominant market share (i.e. something like over 80% share). Some industry pundits have said that Apple’s real genius with the Ipod is figuring out how to take $50 worth of hard drive and other parts and selling it for over $200. But it works. </p>
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<p>Hey, a lot of people who want to enter Ibanking would probably work for less money (as opposed to not even getting an offer at all). But that doesn’t seem to matter, as the pay packages in Ibanking have reached stratospheric heights. Private equity and hedge funds are even worse. </p>
<p>One of the keys seems to be that you don’t just take everybody who wants to get in. You raise pay, but then you only take the very very best people who apply. This reminds me of Henry Ford’s strategy with regards to workers: he announced a doubling in wages over prevailing standards, but then hired only the very best applicants. Most people who wanted to work at Ford couldn’t get an offer. </p>
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<p>There you go. Why don’t other firms do the same?</p>