Why you are paid what you are paid?
Posted by Ashish on September 10th, 2006
When I was a child, I used to tell an uncle of mine that I will gift him and all my cousins a house each, when I grow up and start earning. Not that my uncle had any money problems but I was fond of him and I wanted to do something for him that nobody else would. When I grew up a bit, he asked me a question on what would I like to choose as a profession. I answered that I will go for Indian Administration services - as that seemed glamorous and royal and something that apparently commanded a lot of respect. He laughed and said that “Ok, I am sure now that you will gift us house easily because you get offered a lot of bribe when you are in that position”. Innocently, I asked my dad “Dad, is it good to take bribe?” My dad said “No son. More important is how you make money and what you do with it and not what you make.“ He added “It’s ok to be ambitious but also know your ‘market-value’ and try to be content with that for a happier life. It’s ok to be lucky at times but never demand something you know you don’t deserve.“
(Photo Credit: Review Journal)
It was a long discussion when I asked what is meant by market-value, how do I know what I deserve, etc. and the entire discussion had a profound impact on me. That is a philosophy that we have tried to follow at Tekriti too - most of the times knowingly and sometimes unknowingly. We have always tried to pay people what their market value is (most of the times, a little more than that) and pushing people continuously to increase their market value. That has resulted in people getting salary hikes many times a year and in big percentages - something which is not that common in many places. But then compensation decisions are the most difficult decision any entrepreneur has to make and, generally speaking, is one of the thing that everybody hates to do. I am no exception there, and have looked at multiple resumes in the past months and have also interacted with people from different backgrounds and experience - including people working at Tekriti and at other places. I think that I am in a position to compile my general thoughts on compensation and on why people are paid what they are paid. Most of this is common knowledge, of course.
- Experience / Education and Background: When I joined Microsoft after my graduation, I was offered a salary equivalent to a few people who had work experience of a couple of years. The difference was that of education and background. The company thought that even though I may not be as productive as the other person with more experience in the first few months but I had the capability to ’come up to speed’ in a shorter span of time. At the same time, there were people who had a Masters degree in Computer Science and they joined at a salary higher than mine. And we all joined at the same level. So, yes, we all hate it when it happens - but if we logically think, that is how it is and it makes sense too. Your education and degrees play a big role in deciding your ‘market value’ and hence compensation. It has a bigger role when you are starting your career. Like it or hate it, somebody from Tier 1 school / college is believed to be more valuable by the companies and is likely to be offered more compensation than somebody from a Tier 2 / 3 institute. Don’t get me wrong - this is by no means a reflection of the fact that the Tier 1 person will always keep performing better in their career but a good start is almost always justified by the output they produce.
- There is a range of salaries in the same positions and the ranges overlap: Typically, companies have a salary range for different positions. For example - the salary for a person at level X (eg: Software Engineer, Business Analyst) can have a lower limit of 100 units and an upper limit of 130 units while the salary for a person at level X+1 (eg: Senior Software Engineer, Senior Business Analyst) can vary between 120 units and 150 units. The multipler of units vary with companies and countries but the idea remains the same. So, there is a possibility that a person at level X+1 is making less than another person at level X - for a short duration of time. And this is also why 2 people at the same positions have different salaries. This is something I have personally seen at Microsoft, and at Sapient and I know that happens in all the different companies when I talked to my friends in those companies.
- Medium term output potential: I wish I had a better term to describe this. The point here is, as I mentioned above briefly, that people are not paid for their output as soon as they join. They are typically paid for how productive they will be in the next few months, on an average. So, it’s possible that when somebody joins - that person might be drawing more than what an already existing person makes but then the expectation is that the new person will be much more productive in the coming months. That is why you see people with higher salaries when they join but aren’t as productive then. How else would you justify occasional higher salaries of a person with lesser years of experience than somebody with more years behind them?
- Keeping our compensation confidential is for our own benefit: This is a highly debatable topic. Every organization stresses on the fact that compensations are supposed to be kept confidential. And there is a reason behind this. This is a very touchy topic and, even though the differences can be explained, people don’t want to talk about it to avoid any unhealthy competition. This is something Microsoft was able to manage better than most other companies I know of. I remember that I used to be offended when somebody asked me my salary then. Apart from my parents and a few other family members, nobody knew my salary then. Contrary to that, I see people telling their salaries even in the public forums and social networking sites - which is one of the most insane things I have witnessed.
There are many other factors like “Working smart vs working hard”, “Relation of promotion with compensation” that I can talk about but the above points looks more important to me.
In a nutshell, from what I have learnt so far in my career is that, constantly comparing our salaries with others have the potential to cause more distress than good. The compensation decision cannot be totally objective and anything subjective can be mostly made controversial. The point is how much trust do we have in the company management. If we do, we trust them for a fair compensation as well and if we don’t, there is no point in working for the organization.
September 11th, 2006 at 8:09 am
Well, I believe in keeping the salaries, levels, bonus numbers etc.. public… I am a MS’oftie and often I have seen people not getting good reviews because of a technical inept lead not able to recognize the ‘highly’ tehcnical work done by his/her reports.. they just believe in insane things like sending emails, keeping everyone informeed about everything blah blah blah.. everything except writing good efficient code that saves the comapanies ass.. yeah i know most MS readers must be thinking.. that its review time, and someone got a bad review.. but seriously making things public will only help in preventing undeserving people in getting what they should not have got in the first place and deserving people get what they do..
September 11th, 2006 at 5:57 pm
Ashish,
Awesome explanation. Some more articles written by you are really brilliant. It will be sad if they just fade into oblivion.
I request you to create a separate section (like ‘About Me’) in your blog where you profile all these very useful articles. To decide which article should go in that section, you can create a rating system for each of your blog post. People who read your blog can then rate (like number of “diggs” on digg.com) your article, and you can have a number of diggs to number of people visited ratio as a parameter to decide if you can profile that particular article.
September 11th, 2006 at 6:59 pm
Well, I’m student now and will be joining as a junior s/w engg. in a year or less. After reading Ashish’s blog, I think keeping the numbers secret helps an employee not to go in to depression when he/she gets less than others. This blog reminds of my good old school days, when I got less marks in some xyz subject.
Ashish, as Ahmed said if you create some special thread for all this type of blogs then it would be very helpful for people like me who will getting out of colleges soon.Hoping that you will create that thread soon. Thanks in advance.
September 11th, 2006 at 8:01 pm
awesome blog….awesome post…! keep it up dude…!
September 11th, 2006 at 10:34 pm
Ashish,
, so bear with me if I sound like a non-conformist!!!
I love playing “Devil’s Advocate” with your theories
Let me begin by saying that I fully agree with your point that it is the “perceived value” of a recruit that an organization is paying for. It may be discredited in the long run by poor(er) performance of the employee than anticipated. In a way, it like stock market, where a stock is priced based on it’s “forecast value”. All your parameters are input to decide this “perceived value”.
Keeping the salary confidential, however is a point I do not agree with. It is like telling a stock not to disclose it’s quote!! Well not exactly, but I think you get my drift. No matter how hard the orgs try to keep it confidential, the figures do become public & then there’s the rumor mill grinding away!! I believe that makes is worse, than openly disclosing it. I am not saying that companies need to go out & publish a list of all employees with their compensations (my god, that would be quite some list to publish!!!),however, the companies should definitely be a little more transparent about the salary range for each level. That way, you are cutting down the rumors & also in a way indicating subtly to the employees that they can achieve more, or they are on the threshold of a jump to next level & make it competitive…
I know, these ideas might sound a little unorthodox, for companies like TCS or Infy, but being a more nimble & upfront, maybe Tekriti can try this out
Cheers..
September 12th, 2006 at 11:53 am
Good one as others said but I think that there is lot of overlap between the first and third bullets.
Experience / Education and Background:The company thought that even though I may not be as productive as the other person with more experience in the first few months but I had the capability to ’come up to speed’ in a shorter span of time. (and therefore paid more)
Medium term output potential: They are typically paid for how productive they will be in the next few months, on an average.
September 12th, 2006 at 3:03 pm
Good one.
But, an important point is that there is a difference between peceived value and market value. Continuing with the same stock market analogy, if perceived value is the at par price, market value is the trading price, which can be higher or lower than the percieved value. But, most often salaries are based on market value, not perceived value or estimated value of the output that will be produced by the employee.
Market value depends on demand for certain skill sets, attrition levels in the industry, fear of losing an employee to a competitor, company’s image / desire to be projected as a best paying organisation, employee handling some key projects, etc. etc. and the sector itself
September 12th, 2006 at 10:43 pm
Sreejith,
Market value “is” the perceived value, at least for stock. Market at large decides what it perceives the value to be, based on available data, which could change every second!!
In terms of an employee, however, the market value could differ from perceived value. For example, market value of a Sr Project Mgr with certain exp level/education etc could be 100K USD, but for an employer, perceived value of an employee/applicant for the Sr Project Manager could be +/- 10k USD, because of internal factors, like the importance of the project(s), immediate need of the org etc.
So, to agree with your point, the figure of 100k USD (market value) depends on “external factors” but the perceived value depends more on internal factors (& these internal factors actually are the reason for a range of salary for same post).
Ashish, you’ve been awfully quiet on this blog?!?!
PS: Were you ever at CSKM (you’d know what I mean, if you’d been there!!).
September 13th, 2006 at 12:07 pm
Anon - I see what you are saying but I also disagree with a few of your points. I think that ’sending emails’, ‘keeping everybody aware’ are one of the key things that a manager needs to do. The point I am raising is that even though you make the reviews public, the problem of people not getting what they deserve (or more than that) will not go away. There is always some element of subjectivity to these things and it’s very hard for everybody to agree on it. Of course, it’s human nature to feel bad when one is on the receiving end. But, of course, this is not the fool-proof solution but then making compensation public is also not.
Ahmed - that’s a good idea. I dont know if people will really ‘rate’ but some parameters like ‘page views’, ‘number of comments’ can help decide a rating. I couldn’t find a good Wordpress plugin which does that for the future and past articles - let me know if you know of any. Of course, I dont want to create one myself
Anyways, I will really want to create such a page with links to posts that I think are more useful than the others.
Naveen - thanks! As I said above, please let me know if you know of such a plugin. I will love to create such a list.
Harry - thanks dude! I will do my best
Shobhit - did you play “Devil’s Advocate” before also? I dont remember
I do agree with you that salaries go out in public. So, yes, it’s a good idea to make the range public. I always thought about it but need to validate it a little more before going ahead with it. One thought is that “what purpose will making the range public serve?”. Is it just a little more information? Because the fact that ‘PersonA is getting more than me’ problem will still be there.
And the reason for being silent is just the time-constraint.
I wanted to make sure that I do a better job than “thanks” or ‘I agree’ while replying. And, no, I dont know what CSKM is - so I believe I was never there.
Nagendra - true! I just wanted to make it more explicit.
Sreejith - good point. In fact, it’s extremely difficult to make compensation-decisions a Science. It’s an art and has lot of subjectivity - that is why people ‘negotiate’.
September 14th, 2006 at 12:37 am
I agree with you Ashish. We should never try to compare what we get with others. Not disclosing of salaries have more benifits than making it public.
I think person will feel more satisfied when he doesn’t know about the salaries of others because compairision causes dissatisfaction. Then, no depression, no conflicts between employees…
September 14th, 2006 at 1:21 am
Amit/Ashish,
I dont agree with you folks.
When you are in school, you know where you stand among your classmates after your exams, because you are either ranked or graded and you also know where your mates stand. Similary, if this can be taken constructively, this can result in healthy competetion. (Some of you may think its not a good analogy)
I think I got a pretty good review, but I know people who didn’t get what they deserved, and other people who got what they didn’t deservre, either because the ‘email freak’ leads were not technical enough to understand the quality of work their reports did, or because some undeserving people just happened to do an OK job on ‘visible’ projects.
If review scores and bonus numbers were public, management would think hard before doing this kind of stuff.
September 14th, 2006 at 4:31 am
Here is an analogy:
Did yawl share your scores or rank with your classmates in school / college? In american schools, there are a few people throughout the spectrum (top to bottom of the class) who refuse to share their grades with their peers. I believe that the problem is in their insecurity or perceived insecurity of others and not wanting to damage relationships. From the teachers perspective, I don’t remember any teacher suggesting we not share our scores…
Apparently because they thought they were being fair, and they did not expect students to complain about their grades after learning about anothers grades…
(teachers = companies)
am I stretching this analogy too far?
In the end, it boils down to jealousy… I wouldn’t want to hire the jealous type, and I wouldn’t want to work for the jealous type… I hope we can evolve out of jealousy.
September 14th, 2006 at 8:12 am
Again, this is not about jealousy at all. I am totally ‘for’ people getting rewarded, if they did a good job, its about management giving good reviews to people who did not deserve it, and giving OK review to people who deserved more.
Coming back to the analogy. Well, in school and college almost everyone knew everyone else ranks/grades. For the most part I haven’t see anything other than healthy competition in most cases.
September 14th, 2006 at 8:36 pm
I agree that if there was an objective way to ‘evaluate’ the contribution of different people, making salaries public was good. But I dont think there is a boolean way to evaluate people - there is always a fuzzy component to it. The moment it becomes fuzzy, it’s difficult to make everybody happy. Because our brain typically can understand boolean logic more than fuzzy logic.
My point here is that the contribution cannot be objectively evaluated. What may be excellent according to one may not be that important to others and vice versa. There can be some biases but mostly there aren’t when the decision is taken by a committee.
September 15th, 2006 at 7:04 pm
Anon, I believe one should have compition with oneself not with others. This is the only healthy competetion one can have.
September 17th, 2006 at 11:08 am
Disagree again.. all the big companies today, are big because of competition.. and I believe competition can do more good than bad.. competition pushes them to improve on what they are doing today and be better than the rest.. and where there is necessity.. as they say is the mother of invention.