September 08, 2014

Why it maybe a good idea to (slightly) undercompensate your best people

If increasing pay doesn't work to motivate and retain your best people, what will? Try paying them less advises Atul Jain, CEO of US-based analytics firm Teoco. Extracts from the Business Line article by Teoco country head Srinivas Bhogle:
The gratitude that you think you’ve earned after giving a hike or a bonus fizzles out very quickly. Within a matter of weeks the employee begins to take his ‘new’ compensation or incentive for granted.

...instead of slightly over-compensating our employees, we slightly under-compensate them. If this sounds crazy, hear how Teoco’s CEO Atul Jain explains why it might work. He says, “Assume that I’m the CEO, and let’s see it from my perspective. I see the under-compensated employee as offering me more value. I’m therefore always a little more cognisant of his concerns and requirements; and my sense of fair play forces me to offer him the more challenging or lucrative projects. So he usually ends up getting much better projects and learning the harder part of the business. This experience, over time, makes him progressively more worthy and valuable. It’s just the opposite with someone who is over-compensated. I know that he’s giving me relatively less value, and, if I’m required to cut down my numbers on some project, his is likely to be the first head on the chopping block.

...Last year, some of our smartest youngsters went away when bigger companies enticed them with bigger compensation and bigger promises; but a year later some of them are desperately keen to return – because they find that they were either on the bench, or forced to handle the legacy support of a big-paying customer with no new learning opportunity on the anvil. They eventually figured out that in the first half, or first third, of their career a bigger opportunity and exposure is far more important than more money.  

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of data and analysis on private company transactions, valuations and financials in India. Click Here to learn about Venture Intelligence products that help entrepreneurs Reach Out to Investors, Research Competition, Learn from Experienced Entrepreneurs and Interact with Peers. Includes the Free Deal Digest Weekly Newsletter: India's First & Most Exhaustive Transactions Newsletter.