It’s one thing to hold down a minimum wage job and paid the government-mandated rate, but it’s another matter entirely to be higher placed in the organization but only paid the lowest available rate for your job.
How would it make you feel? Not a warm, fuzzy moment, is it?
When you pay employees the minimum rate for a position you’re telling them that their value to you is just that, the least payable for the position – which is not exactly a strong statement of recognition or encouragement. Quite the opposite.
Of course, there may be several legitimate reasons to pay at the bottom:
- A newly hired employee only meets the minimum qualifications for the position.
- The promoted employee had a salary low in their former salary range, and it would take too large an increase to raise them into the new range.
- Other, more experienced employees in the same or similar job are paid low in the same salary range. Thus internal equity becomes an inhibitor of higher pay.
We can only hope that the company will keep an eye on these employees so that their status as “minimum paid” will be as brief as possible.
Given the above, what do you think it means to one of your employees when you pay them less than the minimum; less than the announced lowest value for the job? It lets everyone know that to the employer the value of this person is even less than what you’ve announced you would pay for minimally qualified employees. That message does not go unnoticed.
Studies have shown that low paid employees tend to perform as you reward/treat them. If you keep someone low paid relative to their internal/external worth, you’ll receive a similar value from them (performance) in return. What's that adage, "you get what you pay for"?
Paying less than the minimum
So why would employers do this? What reasons would compel companies to pay employees at a rate below the minimum of the salary range?
- The employee is newly hired, with minimal qualifications for the position, so the company uses a temporary training rate. When performance indicates the employee can do the job at the basic level they are raised to the minimum rate - usually in 3 to six months.
- For an internal promotion, where the employee is minimally qualified, and the company is giving them “a chance.” Again, a quick increase to the minimum is warranted when performance is delivered.
- If a large increase is necessary to move an employee from one salary range to another, some managers resist granting so much money at once, preferring instead to grant installments that will eventually gain the minimum rate.
- Some managers want to see a “stretch” employee perform before they agree to pay them the minimum rate. In this case, the manager puts the employee into the position, with full responsibilities – but without paying for it.
- In a weak economy that's coupled with a large labor pool to choose from, some short-sighted managers like to get new employees "on the cheap," simply because they can.
Given the above, the question becomes, do companies follow through and look to quickly raise such affected employees to the salary range minimum, and beyond?
I’m afraid the track record there is a bit spotty.
A Bitter Harvest
Without off-cycle intervention, an employee at the minimum (or below) almost never reaches the midpoint of their salary range. Consider this: an average performing employee paid at 80% of the midpoint (a standard minimum rate for many salary ranges) will receive a series of ~3% annual merit increases, while the salary range itself will likely raise ~2% or more each year. Under such circumstances how long will it take for the employee to move a net 25% of current base to reach the midpoint? 20 Years. How long will it take an average performing employee to gain enough knowledge/experience in the job to warrant being paid the market rate? A couple of years.
See the problem?
Low paid but satisfactorily performing employees will see their market value increase much faster than most employers are willing (or able) to raise their pay – thus making this group more susceptible to being lured away by competitors, or any employer willing to pay them what they're worth.
When you promote an employee whose resultant pay is near the bottom of their salary range, be careful to avoid creating problems for yourself in the new salary range; it will be very difficult to move a low compa-ratio employee to a higher ratio in their range – without providing an eyebrow-raising increase. And who has the budget for that?
Please look to the bottom quartile of your salary ranges and find out who's there. Marginal performers likely deserve no better, but you had better ensure that higher caliber employees are moved along and further into the salary range before soured morale and disengagement set in – or they simply quit.
Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations. He is also associated with several HR Consulting firms as a contributing consultant. Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation. He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.
Creative Commons image, "Angry Tiger," by Guyon Moree