[Samurai]

I have been talking about the connection between salary and work-life balance on this thread since 2008. Recently, I tried to collate all my thoughts about it.

In the first 13 years of my career, I worked for many companies in both the USA and India, but I never met anyone who thought they were overpaid. Whenever the topic was broached, people confessed they were being underpaid. It was always based on some peer making much more in another company. Eventually I too assumed I was being underpaid, using the same logic.

When I co-founded a startup in 2004 in India, I found myself in the unenviable position of fixing salaries. Now that the shoe was on the other foot, I obviously wanted to do it the right way. As I looked around at other companies, big and small, I was stunned at the huge variation in salaries. Niche product companies and VC funded startups were offering five times more compared to regular IT services company. This results in at least 80% of the workforce feeling underpaid at any given time. Unfortunately, the trend hasn’t changed in 2015. I continue to meet people on both sides of the spectrum. Some who feel underpaid for the work they are doing, and some who are making extraordinary amounts while doing ordinary functions. So, what is really happening? Why are some companies paying so high, resulting in employees of other companies feel like they are underpaid all the time?

First let me deal with the simple matter of upper limit. Is there an upper limit? Yes, and it is determined by the budget. No company can pay more than they can afford. In case of rich companies, the upper limit can be quite high. So it doesn’t really answer the question. Having a big salary budget doesn’t compel the company to pay high, but it does enable them.

Are the companies trying to pay what each employee deserves? No, nobody really knows what an employee deserves. It is not possible to compute. The accountants can compute the revenue or profit generated per employee, but they can’t calculate the individual contribution of each employee, or figure out what each employee deserves. Any such attempt would be purely subjective. Take a single team, try assigning a percentage number to the contribution of each team member, including the manager. Then ask everybody in the team to do the same. There will be surprising amount of variation. If there are 10 such teams, including human resources, travel, accounts, etc., ask each team to assign a percentage number to the contribution of each team. Again there will be overwhelming amount of variation in this assessment. Therefore, salary is not based on what an employee deserves, which is anyway impossible to compute.

Yet, many companies pay ridiculously overblown salaries to smart people for doing ordinary tasks. Following are the three factors that influence overblown salary:

• Cost of silly mistakes committed by an employee: If a task requires a skill level of X, companies with deep pockets prefer to assign a person of skill level 2X or more for that task. This is because the cost of silly mistakes is lot higher. That is why brilliant engineers often find themselves doing mundane work. They will be bored, but they won’t make silly mistakes. The boredom is compensated by high salary, so that they find it very difficult to leave.
• Cost of disruption when an employee leaves: When a key employee leaves, it can cause significant disruption in the department and their functioning. The knowledge transfer is never perfect and the cost of training the replacement can be very expensive and even affect the company plans in the short term. Therefore, companies with deep pockets pay high salaries to discourage the employees from leaving. If an employee can’t get a better salary elsewhere, he/she is doomed to stick around.
• Attracting talent: This is the most common reason behind high salaries in IT. There are lots of talented people attracted to various companies or industries. The best way to deny them to other companies and industries is by paying them ridiculously high salaries. That is why we often see highly trained engineers designing apps to deliver breakfast or pickup laundry instead of designing jet engines. IT industry can afford this excess by having bigger salary budget than most other industries.

So… this sounds like a great deal for high paying companies and the people who work for them, and a crummy deal for lower budget companies and the people who work for them. Fortunately, that is not the case. People are not always motivated by money, they are much more sophisticated than that. Here is a great Youtube video on what motivates people.

https://www.youtube.com/watch?v=u6XAPnuFjJc

High paying jobs come with strings attached. They could be boring, they could be very stressful, they could be ubiquitous (work follows you everywhere), and they could be all three at the same time. High paying jobs can also dispense with career development and mentoring. In other words, high paying employers are not fools, they will extract full value from the employees. All these inconveniences that are supposedly compensated by high pay, and employees basically give up the right to complain.

While this is all fine and dandy for the company, it can be toxic for the employee. Family life, health and even career development can be at risk. There are numerous instances of highly paid engineers in their 30s without any in-demand skills, suddenly finding themselves laid off. Such people can be easily replaced by younger engineers with in-demand skill. That is another advantage high budget companies have, they don’t have to grow talent in-house by extensive training and mentoring. They can get the people with right skills any time by offering top salary. However, the laid-off employees with obsolete skills find themselves in a pickle. While it is easy to get used to high pay, stepping down to lower pay is way harder. Expenses have the tendency to expand to match the income, in the form of expensive travelling/partying habits, luxury homes with high maintenance, expensive multiple mortgages, expensive private schools for kids, etc.

How do companies with lower salary budgets survive? As they say, necessity is the mother of all inventions and innovations. These companies just have to be innovative in order to provide non-financial benefits that employees will treasure. Therefore, they should look for employees who don’t consider salary as the only criteria. There are many who highly value intangible perks like sane working hours, stress-free work environment, absence of bureaucracy and office politics, workplace empathy, career development, challenging work, opportunities to innovate, and lots of independence. Basically, low budget companies must hire such employees and give them what money can’t buy.

This is a strategy that has worked for us. We never had any VC funding. The need for financial discipline was paramount. We had to make some tough choices. If our salary budget for new hires was 100 bucks, and we needed 4 engineers, we can only pay 25 bucks each on average. The maximum pay is decided by what the company can afford, and not by what the employee deserves. This was a surprising realization. We could increase the maximum pay only by reducing the headcount, and it would force extra workload on those who join. It was either lower pay with work-life balance, or higher pay with no work-life balance. Since most companies in our domain offer the latter, we decided to offer the former. It was more in line with the company culture we wanted to build, and it would also differentiate us from the rest. And we decided to supplement the pay with intangible benefits mentioned earlier. For that purpose, we even moved out of the city, to a village where these kind of jobs opportunities are rare and treasured. Most employees now get to stay within a five minute drive, while some even walk to work. Our attrition is lot lower than the industry average.

In summation:

• One should always try to match the work culture, whether you are picking an employer or an employee. If you don’t get the right match, it never works out. Always know what you want from the employer or employee. In other words, don’t join a high paying job and complain about conditions, or don’t join a high intangibles job and complain about pay.
• Employers try their best to retain employees by a combination of salary and intangible perks, since the cost of disruption and training the replacement is always high. However, any salary increase is limited by budget.
• The feeling of being underpaid is a self imposed one. As an employee, if you think you are underpaid, look at the intangibles you are getting. If the intangibles are substantial, then consider yourself cured. If you think the intangibles are not adequate, or you don’t value them much, then it may be the wrong company for you. Then the cure can be found only by moving to a better matched employer.

[asingh1977]

Originally Posted by Samurai

The feeling of being underpaid is a self imposed one. As an employee, if you think you are underpaid, look at the intangibles you are getting. If the intangibles are substantial, then consider yourself cured. If you think the intangibles are not adequate, or you don’t value them much, then it may be the wrong company for you. Then the cure can be found only by moving to a better matched employer.

Great article write up, Samurai. Quoting a portion I wanted to comment on.

Feeling underpaid is usually a culmination of group speculation, vying for greener pastures, and assuming I am doing more for less. You are quite correct about the intangibles which companies offer. These should be factored before a person decides if he/she is satisfied or not. Aspects like: company brand, relevance of JD to overall experience, distance to office, company culture, voice of employee, medical benefits, experience add on, and opportunities for future advancements matter a lot. Of course there will be people who do not find much value in all this and focus on the core: salary.

[sathish81]

@ samurai- Great write up. However, as asingh1977 pointed out feeling of being underpaid could also be due to group speculation and this could be more dangerous than self imposed one.

[Samurai]

Originally Posted by asingh1977

Feeling underpaid is usually a culmination of group speculation, vying for greener pastures, and assuming I am doing more for less.

Originally Posted by sathish81

However, as asingh1977 pointed out feeling of being underpaid could also be due to group speculation and this could be more dangerous than self imposed one.

Thanks guys. It is mostly group speculation. When I mean self imposed, I don't necessarily mean just individually imposed.

When I moved from a small startup to TCS in 1992, my salary doubled. For a while I thought I am truly being paid what I deserve. But it only took couple of months for that feeling to vanish as my new colleagues convinced me that we were really underpaid. So group speculation does have a huge impact.

[NetfreakBombay]

Originally Posted by Samurai

High paying jobs come with strings attached. They could be boring, they could be very stressful, they could be ubiquitous (work follows you everywhere), and they could be all three at the same time. High paying jobs can also dispense with career development and mentoring. In other words, high paying employers are not fools, they will extract full value from the employees. All these inconveniences that are supposedly compensated by high pay, and employees basically give up the right to complain.

In my experience, jobs at either ends of the spectrum can be good or bad in these aspects (E.g. : Work life balance, Mentoring, Training etc). Work culture is more relevant than salary levels in these aspects.

[Samurai]

Originally Posted by NetfreakBombay

In my experience, jobs at either ends of the spectrum can be good or bad in these aspects (E.g. : Work life balance, Mentoring, Training etc). Work culture is more relevant than salary levels in these aspects.

I am addressing what a company HAS to do to retain good talent. A high budget company can give high intangibles, but it is optional. When it is optional, it is not always easy to give. But for a low budget company, giving high intangibles is not an option. They will retain good talent only via high intangibles.

On the other end of the spectrum, if low budget companies give low intangibles, why will anybody good stick around?

[NetfreakBombay]

Originally Posted by Samurai

A high budget company can give high intangibles, but it is optional.

Competitive salary becomes a "hygiene" factor. Necessary but not sufficient.

Teams in such companies are not been able to spend allocations pretty much every year. What I see is, Product Stakeholders and clients asking for new features, paid support/feature-backport for older versions, more people in client-specific "project" teams for implementation. All these requests are funded and tied to additional revenue, but positions remain unfilled for months.

Do you see companies that do not face challenges with funded open positions? Maybe you have a different perspective.

Originally Posted by Samurai

On the other end of the spectrum, if low budget companies give low intangibles, why will anybody good stick around?

They have their own ways , of course companies with good culture would not get into such ways. Things like : Bonds, refusal to provide positive references, etc etc

[Samurai]

Originally Posted by NetfreakBombay

Do you see companies that do not face challenges with funded open positions? Maybe you have a different perspective.

Keep in mind there is only a finite supply of right people for the job you have, at the salary you want to pay. Sometimes, supply could be nil.

This could also happen if the role is too undesirable or dead end. People good enough for the job may not want it at all. Then no amount of money can attract the right person.

This becomes harder with the seniority of the role. Mistake in hiring the wrong fresher can be easily fixed. But the mistake in hiring the wrong PM or director can be very costly. Companies can become very risk averse and keep the vacancy open for a long time.

Originally Posted by NetfreakBombay

Things like : Bonds, refusal to provide positive references, etc etc

Been there, seen that. Such coercive techniques only work in short term. Eventually people learn to keep a distance from such companies.

My article primarily focuses on how companies design the salary + intangibles combo to attract and retain good talent. I deliberately left out the demand/supply or coercive retention polices. That is a whole another topic.

[NetfreakBombay]

Originally Posted by Samurai

My article primarily focuses on how companies design the salary + intangibles combo to attract and retain good talent.

Somehow impression I got from the article was of correlation between company paying high salary and company culture towards work life balance.

I do not see that. I see companies on both ends of spectrum having good or bad culture in this aspect.

[Samurai]

Originally Posted by NetfreakBombay

I do not see that. I see companies on both ends of spectrum having good or bad culture in this aspect.

That's alright, it is a very contentious topic. Before it was first published, one of the reviewers of the article warned me that only 1% of the readers will agree with me.

[tsk1979]

Originally Posted by NetfreakBombay

Somehow impression I got from the article was of correlation between company paying high salary and company culture towards work life balance.

I do not see that. I see companies on both ends of spectrum having good or bad culture in this aspect.

Yes, but a company not paying and having bad intangibles like work life balance, freedom etc., is not going to get good engineers. Good programmers who can actually design a working system from a specification will leave such a company.

That is the reason you find most of them working in product companies where either salaries are very high, or work life balance is great, or both.

[lazy]

Originally Posted by Samurai

..........

• Cost of silly mistakes committed by an employee:....
  ..........

Beautiful article Samurai, esp. the point above.

In my 15 years of working, my observation has been that it is your reason# 3 that drives what Salary is paid to a candidate.
Even during our (failed) startup days in 2008 despite the limited finances, what caused salary differentials was the attempt to attract that 1 person who has the skills & grunt of 2/3 individuals.

Always great reading your posts. Thanks.

cheers
lazy

[asingh1977]

Originally Posted by Samurai

Been there, seen that. Such coercive techniques only work in short term. Eventually people learn to keep a distance from such companies.

Though many a times it is literally impossible to avoid bad-practices which have been subsequently standardized and have permeated to an industries firms. Signing a bond prior to a training/OJT (abroad), 90 day notice period, harassment and fear mongering during resignation and thereon threat of with holding experience certificates to name a few. These are mechanical devices per say, which are difficult to ascertain from the exterior. Only once someone is integrated with the system do they realize that the meshing and gelling is actually so difficult. People linger on as much as possible and then exit, amicably or try to. What suffers..? The employees morale, and of course the work throughput. Leaves a bitter and harsh taste in the mouth.

[alpha1]

What a lovely article Samurai, !
And in my limited experience of this world, it is the truth.

Originally Posted by Samurai

One should always try to match the work culture, whether you are picking an employer or an employee. If you don’t get the right match, it never works out. Always know what you want from the employer or employee. In other words, don’t join a high paying job and complain about conditions, or don’t join a high intangibles job and complain about pay.

Somehow most people do not understand this very simple thing.
Most people do not realize (neither in professional, not in personal lives): what they are getting themselves into and what is the real payoff.

The feeling of being underpaid is a self imposed one. As an employee, if you think you are underpaid, look at the intangibles you are getting. If the intangibles are substantial, then consider yourself cured. If you think the intangibles are not adequate, or you don’t value them much, then it may be the wrong company for you. Then the cure can be found only by moving to a better matched employer.

A very important point. People behave like herd, and an individual behaves like a sheep. Somehow no-one understands the reason why it is called COMPENSATION. It is to compensate for the time and effort that you could have spent on something else.

A person having a family, hobby, "extra-curricular" activity, social engagements etc will always have something else to do which he wouldn't want to cut back on. The price of this is usually much higher than simple "extra monetary compensation".

The reason why someone (and usually most of the masses) will not understand your point of view is because they don't have anything else to do in their lives except do something to earn money! (I am inclined to believe that not many people are really doing something that they are obsessed with, so I am not taking these "mad artist/scientist" kind of people into consideration).

[mallumowgli]

Originally Posted by Samurai

I deliberately left out the demand/supply or coercive retention polices. That is a whole another topic.

Is the demand/supply match an altogether different topic? Wouldn't it be intertwined with the retention policies that you are making? If after providing all the intangibles that you can, you still feel that you have hit the ceiling of your wage bill, I think the company would be forced to rethink at a strategic level at the business model itself.

You have chosen your office location well - a fertile breeding ground for good talent with all those good educational institutions, people preferring a laid back life style, good mix of urban and semi-urban lifestyles etc (and closer to your home, lol!!)

But these are external factors and there is always a risk of losing them to other external factors

I don't know what business you are exactly into, but unless you are in a sufficiently attractive niche with higher margins (and hence be able to pay sufficiently high) the trade-off between work-life balance and very high pay may work out negative

(btw, you forgot to provide the youtube link you referred to)