The Case for Paying Your Employees Less Money

It’s no secret that for the bottom 90% of Americans, wages have stayed basically flat for the past thirty or so years. And there is a lot of buzz these days about whether or not to raise the minimum wage. That certainly won’t solve the problem, but it’s a good start.

When you are running a company, you have to decide how you will set compensation across your organization. There are a couple of competing ideologies at play. Some say pay employees more, some say pay them less.

Here is the case for paying them less:

  1. Salaries are expensive. In any company, employee pay is going to be one of the biggest costs of doing business. And it’s easy to look at the total salary number as a percentage of revenue and think about how you can lower it.\
  2. Tie salaries to production. Keeping base salaries low and paying performance-based bonuses is not necessarily keeping wages low, but it is a way companies can attract talent without broadly raising wages.
  3. Salary waste. For each position with your company, you can look at what you’re paying vs what you’d be paying a new hire with the same qualifications. If you are paying someone more than you would pay for something new in that position, it’s easy to view the difference as waste.
  4. Profits and investor returns. The lower you can keep salaries, the higher your earnings.
  5. Job growth. If salaries are lower, you can generally afford to hire more workers. If all salaries go up, many companies worry about the need to cut staff.

Yesterday we made the case for paying them more. Check it out here.