Why You Should Pay Higher Salaries

Like your company’s products, the people you hire are exceptional. They are worth more than people who work for your competitors.

Is your company in a commodity business, where the selling point is price and your marketing strategy is: “How low can we go?”

Maybe you are—and there’s an art in selling commodities. But I’ll bet your company sells quality and innovation—and markets value. Your products or services are better—so you charge more and enjoy higher margins.

If you’re in the latter category, I’ll bet your HR department crows, “Our people are our most important asset!” and “We hire great people who think out of the box!” In other words, like your company’s products, the people you hire are exceptional and worth more than people who work for your competitors.

I’m starting to make you nervous, aren’t I? Does your company pay premium salaries to hire and retain premium workers? My guess is your HR department has a bell curve pasted on its wall. It describes salaries in your industry—and HR designs job offers and salaries to clump in the middle of that curve. HR pays as little as it can get away with and builds mediocrity under that bell curve.

There goes quality, innovation, and value, right out the window. And there goes your cost graph, up, up, and up. I’ll echo the warning that HR veteran Suzanne Lucas (aka The EvilHRLady) issues: “Stop Being Cheap: Why Saving Money On Salary Is Costing You Big Time.”

Before you assume I’m advancing a liberal or socialist political agenda, I’ll remind you that I’m a dyed-in-the-wool capitalist. I don’t buy into any political philosophies or agendas. I believe in earning the greatest profits by delivering the greatest value. And that belief should underpin your policy of paying higher salaries to hire and keep the best people.

Lucas explains why paying more costs you less by citing the example of a woman who was promoted by her employer and given a 10% salary increase. Later, HR called her in to explain that was an error. The promotion was real, but the increase was an error—so they were reducing it to 5%. After the woman’s boss appealed this decision and urged that the employee should be allowed to keep the 10% raise, HR said no dice—the employee would have to eat the mistake, not HR.

The disappointed employee quit and went to work elsewhere for more than a 10% raise. Lucas says the hidden costs for this employee turnover are between 25% and 50% of the annual salary for the job. They include:

• Overtime while other employees did Jane’s tasks.
• The hours spent by HR, the hiring manager, and his boss to interview replacement candidates.
• A higher salary for the new hire—since changing employers usually results in a higher “raise” than the raise you get when you stay with the same employer.
• Training costs to bring the new hire up to speed.
• Lost productivity.

“Saving money by being stingy with salaries and raises rarely pays off for the company. Think hard before you treat someone poorly. It can end up costing you and the company dearly,” writes Lucas. Most companies do not account for these costs—so HR is allowed to keep paying under par.

I’m not suggesting that you pay exorbitant salaries to attract and keep good people. I’m suggesting you look under the hood of your HR department’s compensation policies before you agree to forego hiring the best candidates because HR tells you “they’re overpriced.” Says who?

You show your customers why it’s wise to pay premium prices for the best value. Do you have any idea what the value curve is in your compensation policies? Or are you happy to live under the fat middle of your industry’s salary bell curve? For some help with this, see “How Do I Decide What To Pay A New Hire?”

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