offering low salaries says my market rate is what??

Tom works in your team. When you hired Tom, you offered a very low salary for the role. Particularly in comparison to someone else that you hired only months earlier. At the time, you both felt as if you were getting a bargain.

It’s a skilled position and Tom is a pretty capable guy. Tom gets along well with the team and whilst people in your company are generally discouraged from discussing salaries, the topic definitely comes up from time to time.

In the last few months, you’ve sensed Tom’s growing dissatisfaction at work, noticing him becoming more and more frustrated. He’s been asking for more money at review time too, but it’s hard to stretch the budget right now. You have given him what you can, which isn’t much. How long will Tom last?

When you offer low salaries, do you know the consequences?

Some teams have an arrogant culture. “They should just be happy they’ve got a job here”, is what leadership say. They might even blame Generation Y being greedy as the cause if they are talking about a relatively young employee.

This is an easy attitude to have when you are paid well in a senior leadership position. But the implications of offering low salaries can be particularly damaging, so it’s important to know what you’re getting yourself into.

Offering low salaries devalues your employees in the market

Salary bands are in place for a number of reasons. One reason is that you can ensure that you have pay equity amongst internal positions, whilst remaining competitive externally. When you are offering low salaries to all employees of a given role compared to the market, then you are likely to appear to be valuing your employees less than other comparable organisations do.

This is more likely to give your employees a sense that you don’t really value their skill set. If this is the path you choose to go down, then you should either expect people to leave their positions after a short period of time or you need to be offering them something that they value to encourage them to stay.

Offering low salaries promotes resentment between team members

When there is a large disparity between salaries of team members that have a similar role in the organisation, this creates tension and dissatisfaction. Though many people think that “salaries are secret”, this is hardly ever the case in practice.

How do you think it feels when you find out that you are being paid significantly less than one or more of your peers who has similar experience and is showing a similar level of performance?

First, an employee may become resentful toward another more highly paid team member. But soon enough, the team member will focus their resentment toward the leadership and the organisation. This employee is more likely to “check out” than one who feels they are well paid.

Offering low salaries shows short-term thinking

Yes, right now, you are getting a “steal” by hiring Tom on a low salary. Soon Tom’s great performance is going to fade as he becomes dissatisfied. I’ve come across a number of situations where team members are being ripped off by an organisation.

If you are prepared to accept the consequences of having employees become dissatisfied and leave the organisation after you squeeze some work out of them, you are promoting a churn and burn culture. In the short term this may be OK, but soon enough, the organisation will be referred to as a “sweat shop” or similar.

After a time, it will be difficult to hire talented employees who demand higher salaries, because your operating model relies upon utilising cheap people to deliver your services. Once this is the case, many people will simply overlook your roles for salary reasons. These could be great employees, but you’ll never have the chance to find out.

When offering salaries, it is worth looking to the future and seeing the ramifications of the choices you are making. Are low salaries a purposeful choice based on what your organisation does? Or are you simply trying to do things on the cheap with no regard for the context of your company?

Sometimes offering low salaries suits an organisation

Some organisations and industries promote an “up or out” approach to managing employees, which is in place for a specific reason. Employees either progress upwards, being promoted through management levels, or they leave.

Consulting is one industry that uses this strategy to ensure that their employees are striving to be promoted and not simply becoming stagnant in their roles at a given pay grade. This approach works, because you need motivated and ambitious people.

Sure, there is still often significant dissatisfaction among employees regarding this style of resource management, but at least it is purposeful. These companies know what they are doing in this regard, and it is intentional.

However, if you are just trying to get a cheap deal on a good team member, you are thinking only about the short term.

It is easy to take advantage of employees by offering low salaries

Some employees are easy to take advantage of when it comes to salary. They may have come from bad workplaces, so they are happy to accept your low offer.

Others have no idea of their value in the market so they have no basis for comparison. Some have come from an even lower salaried position, so they’re grateful for what they are getting.

If your organisation promotes a culture of offering the lowest salaries, then even these grateful employees will eventually become dissatisfied as they realise they got a raw deal.

If your organisation takes advantage of employees with regard to salary, don’t expect to produce great quality outcomes. Don’t expect high levels of motivation, and don’t expect longevity when it comes to retention. What you should expect, perhaps, is mediocrity.

Is your organisation in the habit of offering low salaries to get the “best deal”? What effect have you seen this have?