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The dangers of paying under salary market rate

Anyone searching for a new job will have noticed that the salary they are seeking or the salary their role and experience would have warranted some months and years ago seems to have decreased, in some professions and industries, significantly. Why??

The cost of living hasn’t decreased, in fact its steadily going up and yet salaries are decreasing and for no apparent reason other than that Companies can find ridiculously qualified individuals willing to take whatever salary they can, which is now driving market rate salaries down.

So, are Companies taking advantage of people’s misfortunes?

In tough financial times, Companies are forced to look at what is usually their most expensive asset, the workforce, and must make tough decisions – to either reduce the headcount potentially letting highly qualified and productive employees go or ask their workforce if they are willing to take a cut in salary for the foreseeable future. What other option is open to them? It’s either ask people to take a lower salary or reduce headcount or potentially keep the Company on such a path that it may eventually be left with no option but to close forcing 100% redundancies.

It’s not an easy decision to make and once implemented the next hurdle a Company faces is how to keep the remaining workforce motivated to start bringing the Company fortunes back so that you don’t have to go down this route again in the not so distant future?

In countries where Employees need a local Company sponsored employment visa in order to remain in country, Companies may also lose key members of the team if their Employees family members lose their jobs meaning they all need to return back to their home country. The Company is then left with an urgent vacancy. The good news here is there are many potential candidates ready and immediately available to join on a lower salary - the downside is trawling through 1,000’s of CVs.

Companies can currently employ highly, and in some cases, overly qualified candidates at a reduced cost to Company as there are a lot of immediately available candidates around, and because they can get talented people at a reduced cost this is driving market salaries rates down.

For example, a Junior CFO level candidate may be willing to take Financial Controllers role at a Senior Accountants salary. They need a monthly income, visa and medical insurance for their families so they can stay in country – and the Company gets an Employee versed in advanced Finance who is able to do more than the job description dictates – but for how long?

The drawback is that the Employee could see this new role as a “stop gap”, somewhere where they can hold on and see the financial “crisis” through with a lower monthly income, while waiting for things to pick up, market rate salaries to go back and then take the opportunity to be locally available for the next employer willing to pay the going rate meaning you are back at the drawing board and have to start recruitment all over again increasing your costs, spending additional time searching in a market where demand may outweigh supply and disturbing the team that have work together to see you through.

Companies need to look deeper than the monthly wage bill to keep their teams motivated and loyal. Refer to last week’s BLOG to review my suggestions on how you can do this.

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Claire Donnelly

Written by Claire Donnelly

A Business Growth and HR Strategist helping medium size companies to Scale Up using proven systems. Claire is an MCIPD qualified Human Resource professional, with 25+ years’ experience working within various industries and 10 + years’ experience of HR practices throughout the Middle East. As a HR Generalist she has held a number of senior and Board level HR positions. She is experienced in working at both strategic and tactical levels.

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