Underpaying v/s overpaying an employee

Salary of an employee is one of the crucial factors for both the company and a resource. Under normal circumstances, a company would always hire a resource who is the best value for money. However, there are occasions where an employee is either underpaid or overpaid for the skills and experience he/she possesses.

It is very important for a company to offer the right package for every hired candidate and there are several reasons for it. Here is a consolidated list, which may or may not consist of all the points but at least some of them which could potentially be a crucial factor for both, the company and a resource while hiring or job hunting respectively.

Firstly, it is very important to realize the reason for an employee being underpaid or overpaid. Sounds complicated but it isn't really that difficult to understand.

A company would underpay a qualified resource in the following circumstances:

1. The resource has been unemployed for some time and that could be a potential weakness for the resource even if he/she has a valid reason which companies may use to their benefit

2. The resource may already be drawing a lower salary for his skillset and experience because he/she was not aware of the market and the company may offer a comparatively higher salary but still lower than industry standards.

3. The resource is frustrated with his current employer due to personal/professional reasons and wants to move to another company just to escape from his current employer.

4. The resource is happy with whatever he/she is being offered and salary is not the real motive for the person to work.

A company would overpay a qualified resource in the following circumstances:

1. The company is willing to hire the best candidate at any cost because they have a long-term goal and know what they want to achieve

2. The company has lost a lot of important resources and needs to backfill those positions on an urgent basis to cater to the business needs without any interruption

3. The resource was already drawing a high package and the company has a budget so doesn't mind adding a resource with hopes of expansion

4. The company is experimenting with new ideas to achieve a goal that is set with/without assessing risk factors.

5. Attract talent from its competitors to expand its own business.

What could this lead to?

1. A company not always hiring the right resource

2. Resource not always getting the best opportunity

3. Causing artificial deficit in opportunities because the company has invested a very high budget on a single resource

4. Underperformance by employees who are overpaid because they were already happy and wouldn't mind compromising those additional perks for some comfort.

5. Demotivated employees when they realize their worth if they do not get what they deserve

6. High attrition rate as overpaid employees may get greedy and underpaid employees may keep switching to find the right job

This is something that both employees and companies need to realize.

Employee perspective, they need to know why they are being overpaid or underpaid.

Company perspective, they need to realize if what they are doing is really a necessity or just creating new trends which are changing the market.

There is no conclusion to this topic, just a thought I felt I should share it with my network to create awareness. Hiring benchmarks set by a company could depend on factors like business motives, and so do the hiring trends. Similarly, job hunting could depend on individual perspectives and interests. Right or not can be decided by every individual/company, you are the judge.

Have a nice weekend and keep spreading smiles. :)