The age-old saying “you get what you pay for” rings true in the world of employment as well. While budget constraints and financial considerations are always factors in deciding employee compensation, the decision to underpay your employees or offer salaries lower than the industry average can be risky.

Not only can it lead to a lack of engagement and less efficient performance among your employees, but there are several other unintended consequences that may impact your company’s bottom line.

Here are four often-overlooked consequences of underpaying your employees:

  • Increased turnover. Salary is one of the top reasons why employees leave an organization, and underpaid employees may feel undervalued and unappreciated. When they believe they are not being fairly compensated for their contributions, their loyalty towards the organization decreases. They are more likely to keep an eye out for better opportunities and will leave when they find them.
  • Lack of leverage when hiring new talent. When you are not willing to offer competitive pay, you lose the ability to compete with other companies when it comes to hiring top talent. As a specialist software sales recruitment agency, we understand that finding great talent is already a challenging task, but failing to provide reasonable compensation significantly reduces your chances of success.
  • A reputation for being cheap. A reputation for being cheap will harm your employer brand reputation. When you are known for not paying your employees well, word will quickly spread within the industry, hurting your company’s reputation. If you do not compensate your staff appropriately, it sends a message that you do not care for them, making it less likely for people to apply for or work for your company.
  • A poor company culture. Offering low pay can result in a poor company culture, impacting employee morale, motivation, and engagement. When morale is low, performance may suffer, and employees may not be motivated to go above and beyond their duties. Poor culture can lead to higher turnover, a negative impact on your employer brand, and a decrease in recruiting leverage.


Underpaying your employees is a short-term decision that can have long-term implications. Before deciding how much to pay your employees, consider these unintended consequences and weigh them against your budget constraints. Remember, offering reasonable compensation will likely yield better results in the long run.

Here are some additional tips for avoiding the unintended consequences of underpaying your employees:

  • Do your research. Before you set salaries, make sure you understand the market rate for your employees’ positions. You can use online resources, such as Glassdoor, to get an idea of what other companies are paying for similar roles.
  • Be transparent. When you’re hiring new employees, be transparent about your salary ranges. This will help to avoid any surprises down the road.
  • Offer competitive benefits. In addition to salary, there are other ways to attract and retain top talent. Consider offering competitive benefits, such as health insurance, retirement plans, and paid time off.
  • Create a positive work environment. A positive work environment can go a long way in offsetting lower salaries. Make sure your employees feel valued and appreciated, and that they have opportunities to grow and develop their skills.

By following these tips, you can avoid the unintended consequences of underpaying your employees and create a more positive and productive work environment.