Building a software company is no easy task. It takes capital, leadership, and a healthy dose of timing and luck. However, as any founder will attest, there is no more critical element in determining a startup’s success than its people, and how well they execute on your vision. Your ability to attract and retain the best engineering, leadership, and sales talent is the single biggest factor in whether you’re ringing the bell at the NYSE three years from now, or closing up shop.
Top talent comes with a price tag. The age-old saying “you get what you pay for” certainly rings true in the world of employment. While budget constraints, runway, and financial considerations are always factors in determining employee compensation, the decision to underpay your employees or offer salaries and compensation packages lower than the industry average can be a risky proposition.
Not only can it lead to resentment and a lack of engagement, but there are several other unintended consequences lurking beneath the surface that may impact your company’s growth trajectory. At RevsUp, we have thousands of deep career conversations every year with candidates in transition, and we’ve heard it all. Here are a few of the most common narratives we hear, with respect to how compensation affects employees and their career decisions.
- Increased turnover. Full stop. Salary is one of the top reasons why employees leave an organization, and underpaid employees may feel undervalued and unappreciated. The best candidates understand the market, and when they believe they are not being fairly compensated for their contributions, their loyalty and commitment to the mission languish. Even new hires are likely to pursue new opportunities, and they’ll leave when they land one. Sure, money is not the only factor in assessing an opportunity, but it’s an important measuring stick for determining one’s value to the organization.
- Lack of leverage when hiring new talent. When you offer below-market compensation packages, more offers will go untaken. Top producers almost always have multiple offers on the table, and a declined offer often means more than just losing a desirable candidate. Often, that same candidate ends up at a direct competitor, closing deals that should be yours. Your new mortal enemy.
- Reputation for being cheap. A reputation for being cheap will harm your employer brand reputation. When you are known for not paying employees well, word spreads within the industry, creating an environment that attracts marginal performers at best. In the Glassdoor era of pay transparency, that’s a tough reputation to rehabilitate.
As one of the premiere sales staffing agencies in North America, we see all kinds of compensation plans. We encourage our clients to consider the implications of salaries, bonus, and commission structures on each individual candidate, but also to get creative. In the startup world, for instance, equity often plays a big role in the overall offer.
Quality health benefits are likely to be a higher priority for a mid-career professional with a family, than for a recent college grad. A flexible work-from-home policy is likely to play a big role with a candidate looking at an hour-long commute into the office. In all cases, good discovery questions, and understanding the uniqueness of the individual will play a big role in landing the hire that can help you get to the next stage of growth.
In the end, paying below-market salaries is highly likely to create a poor company culture, impacting employee morale, motivation, and engagement. When morale is low, performance suffers, and employees are unlikely to be motivated to go above and beyond their duties. That means that underpaying your employees is a short-term decision that can have long-term implications.
About the Author
Derek Wright is Practice Director for Artificial Intelligence, Cybersecurity, and Data companies at RevsUp, a Recruitment Entrepreneur company. A former sales leader and exited SaaS founder, Derek recruits top-tier GTM talent for many of today’s most innovative companies.