Blog

Today, I want to talk about a brilliant podcast about pay rises in an organisation. In the past, I took inspiration from a quote by Robert Bosch – I don’t pay good wages because I have a lot of money, I have a lot of money because I pay good wages.

For details on this discussion, please refer to Managing Employee recognition Vs Pay Hikes. The podcast starts with a premise as to how debilitating it is to be motivated only by money. Granted that money is a motivator, but a horrible feeling when you are trying to make ends meet. A job that doesn’t pay you to lead a decent life is not good enough for a healthy work relationship.

In this article, I’d like to talk about the salient points highlighted by the podcast – why it pays to pay more.

Meaning – Why it pays to pay more

In this podcast, Adam Grant talks about the motivation which can directly influence productivity when employees are paid adequately in an organisation. However, it does raise a question about why companies are not doing it in the first place. The simplest and the most common answer I have seen is – because we don’t have enough money.

Why companies don’t do it?

• They have not planned for it, feels like a huge expense
• It means a change to the status quo which most companies refrain from
• It is not the easiest to implement because it isn’t easily tangible as to what constitutes the right pay

Even with the above challenges, I love the podcast because it makes a case: why it pays to pay more. This is particularly more relevant with startups. I’ve seen a few founders try to get talent for less than the market price. This approach not only fizzles with time but also creates an awful working environment for development to sustain. Some common tips about hiring for a startup can be found at successful hiring for a startup

Fair and Generous Pay

Sometimes I do wonder if this sounds like an unreasonable expectation. We all have to do the roles for a certain salary etc, but paying someone below the market rate immediately raises a question – is the organisation exploiting people. Or as highlighted in this podcast – are we treating employees as liabilities rather than assets?

Who should get the fair/generous pay:

A common mistake is to focus on excellent performers and offer pay raises only to them. It not only creates an environment of competition but also creates a clear divide. It demotivates an average performer even further. It doesn’t necessarily mean that competition is bad. Instead, it means that the companies need to find a different way of motivating outstanding performance.

Why focus on fair pay?

• Without having to worry about money or sustenance, it allows for uninterrupted work focus
• Creates a sense of belonging and trust with the company rather than the feeling of being taken advantage of
• Focus can be more on the job than just the pay alone
• Elevates relationship from transactional to relational
• Help keep up the morale

Transparency in pay

Another point that caught my attention was transparency in pay. For numerous reasons, companies don’t want pay to be public information. I understand the rationale – causes competition, comparison with others. As much as I see this side of the story, I do find that some aspects can benefit from transparency.

What can companies make transparent?

Although making pay transparent is hard, companies can focus on making the pay structure transparent. Some companies do this well by introducing bands of pay for certain roles. It gives a clear indicator for people to aspire and aim for. Another thing to consider is making the hike or bonus structure transparent. Through this, a lot of clarity can be achieved for people to be motivated in the team.

What if you are an entrepreneur?

For an entrepreneur, challenges are slightly different. At the start, if you are bootstrapping, there isn’t enough money. However, you can consider stock and share options. The worst thing for an employee is to feel exploited. To reiterate the premise – why it pays to pay more – business is all about increasing the size of a cake rather than fighting for larger pieces of a tiny one.

As a founder, your job is to scale and grow the business. To do this, you need a strong team that can only come to you if you are fair and treat people with respect.

Summary: Why it pays to pay more

In essence, the answer to the question – why it pays to pay more lies in the point of increasing the size and capability of a business. Elevating the quality and level of challenge helps everyone to buy into a vision. An employee would be more excited to work for a company that fairly treats them. The moment someone feels exploited in their role, it is very hard to sustain such employees in a company.

Unfair pay scales are the easiest way to ensure that great talent leaves the company at the earliest opportunity.