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What Happens When Companies Pay Employees the Best Salaries

This article was written by in Career and Work. 11 comments.

I worked at a non-profit organization for a few years, and the employee turnover at that company was frightening. This particular group attracted young adults right out of college, like myself, who believe in the mission, work hard, settle for nothing short of excellence, and are willing to sacrifice personally for the good of the organization and ultimately the good of the community being served by the organization.

And that lasted less than three years for most employees during the time — the three years — I worked at that organization. The turnover was high because talented, driven young people attract opportunities, and even when unemployment is a societal problem on the whole, they can often choose from multiple offers. And even people who are passionate about a worthy cause can eventually understand that they’l need to provide as much as possible for their families and their futures. Unless they come from independently wealthy families, higher salaries and good health insurance benefits eventually become the better choice than sharing a cardboard box with three other roommates while following a passion.

Non-profits and private sector companies can both benefit from investing in human capital, and that comes down to compensation, which includes wages, salaries, and bonuses, and benefits, a category that includes everything else a company offers its employees.

Companies that are able to offer employees, especially those in the ranks other than executives, the best packages of compensation and benefits in their industries have a better chance of succeeding.

  • The best employees have more offers to choose from, generally. Employees who are more likely to help the company succeed are more likely to succeed personally in any endeavor. These employees are more likely to choose companies offering offering the best compensation and benefits among the competition. Recognizing and appreciating talent does not go unnoticed.
  • When employees feel appreciated, productivity increases. Productivity is the key to success for companies, whether it’s a non-profit company, a governmental organization, or an employer in the private sector, and that’s why companies spend so much time, money, and effort on training employees to be productive. Perhaps that money would be better spent in compensation, which studies have been shown to increase when employees are more satisfied, regardless of productivity education.
  • Satisfied employees are correlated with increases in the value of the company. One study found a correlation between employees’ level of self-reported satisfaction and stock market values. The study is confident in its cause analysis: “Thus, successful efforts in increasing employee satisfaction appear to enhance overall firm productivity, which is subsequently rewarded by investors through higher equity values.” (University of Central Missouri)

If an executive or board of directors wants a company not only to succeed but to succeed at a level of excellence and to be the best in the business, the company must attract the best employees. High-quality, high-skilled, and high-effort workers, those who would be best to help a company achieve its goals, will attract many offers, and unless there is some compelling reason outside of compensation, the way for a company to stand out among the competition is to offer the best wages.

There are some caveats. Studies link employees’ overall satisfaction with the company’s success, and satisfaction can come from benefits other than compensation. The fact that people aren’t always motivated solely by money is a good thing, but some of the ancillary benefits that companies use other than compensation to attract employees can be difficult to compare from one job offer to another. And any one employee is likely to have different non-monetary motivations than any other employee.

Every worker needs compensation, though. For anyone who is not independently wealthy, work is something someone does to make sure they can afford the basic necessities of survival and beyond. Employers seem to often find ways to downplay the importance of compensation, despite the understanding that financial needs are the core to survival. I’ve heard company executives rationalize low salaries and substandard, if any, benefits by downplaying the importance of compensation in employee satisfaction.

The danger of encouraging a culture where the best employees look for nothing more than the highest-compensated acceptable position is that they’re more likely to abandon the company when faced with a competing offer later on. The solution is to keep employee satisfaction high and to continue offering the best salaries. From a high-performing employee’s perspective, companies don’t compete with each other just through the initial hiring process, but through the entire tenure.

There are many cases where the best employees choose the options that aren’t the most financially attractive, at least in the short-term. A highly-motivated and highly-talented individual might choose to work in public service if his or her long-term goals are political in nature, for example, or perhaps there is such a strong belief in a cause that personal survival can take a back seat. That second situation, a burning need to support a cause with one’s life work, is simply more likely to occur among those who for whatever reason have little need to focus on their own finances. Of course, ignorance of finances, willful or otherwise, is yet another way that someone can choose the least financially attractive option.

You might have noticed that companies tend to look at external influences when rationalizing pay cuts, low salaries, and lay-offs, especially if it offers the opportunity for the company to garner press in the mainstream media. First we heard from business owners who threatened to lay off workers if a Democrat were to be elected President of the United States in the 2012 elections, and now the scapegoat for poor corporate fiscal management is the Affordable Care Act (“Obamacare”). Rarely, if ever, are the companies that place external blame for the dissatisfaction ahead of their competition. Those at the top have found a model that allows them to attract the best employees despite any external threats.

Although competitive salaries and benefits may be the best way for companies to stand out and attract the best workers, it won’t solve all of society’s problems. You can’t solve poverty by turning all low-paid fast food jobs into well-paid positions. If you raise pay by too much, these same jobs become attractive options to more people, and with more competition for those positions, those on the margins of society will have a more difficult time competing for those same jobs.

Here’s what companies can do today if they want to achieve excellence and profit in their fields.

  • Recognize that the value of a company comes from the quality of work among its employees.
  • Make the positions in your company stand out, so the most talented employees will be competing for open positions.
  • Offer the best salaries and benefits across the industry for any particular position.
  • Assemble the best team possible, and the company’s challenges can be overcome more easily.

Do you think companies should offer the best compensation packages to attract the best employees? Is it better for a company’s long-term to keep human resources expenses as low as possible?

Photo: Flickr

Published or updated August 6, 2013.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 11 comments… read them below or add one }

avatar 1 Anonymous

Many years ago, I worked for a company (Fortune 100) who paid the highest wages and had the best benefits. At the time, employees even flew first class, although they no longer do that. They were able to attract the very best people Aside from the obvious, it was not only challenging to work with the best, it inspires even greater results. I learned so much from those years.

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avatar 2 Anonymous

I think compensation certainly plays a major role in attracting better employees. That said, I do think in many cases is does come down to what else can the employer offer. Do they offer decent benefits? Do they offer chance to grow professionally? Would I be able to have a good work/life balance? Those are all questions I typically look at and play a considerable role in if I’d take the job or not.

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avatar 3 Anonymous

Well, Walmart and McDonald’s are two companies that took the exact opposite approach, and are wildly successful. I think the main reason for a company succeeding is if it offers a product people want (or advertises well enough to make people want the product they have) at a better value than the competition. Some times people want to pay more for a superior product/service, other times they want the lowest possible price even if the product/service is inferior to competitors. It depends on the industry I suppose..

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avatar 4 Anonymous

The best way, in my opinion, for a company to show an employee that they value them, is to pay them like they do.

The company exists to make money, so peeling more of it away for your key employees shows they mean something to the success of the venture.

Source: Accountant, Me

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avatar 5 qixx

I find that high turnover can end up costing more than paying a better wage/salary and retaining high-quality employees. I’ve worked for places that pay well and treat their employees like garbage and i work for others where the pay is garbage. Neither one is somewhere worth sticking around at. You have to pay and treat employees well if you want the best out of them.

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avatar 6 Anonymous

If you don’t end up overpaying too much, paying more than the business standard is definitely the way to go in my opinion. You will also get to attract the best workers, of course!

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avatar 7 Anonymous

Companies need to pay enough to attract and retain workers that are able to get the job done. And companies do need to make sure their employment costs are minimized.

No every company doesn’t need to pay ‘top dollar’ for every employee. Its really about supply and demand.

Should McDonalds pay people $10, $15 or $20 an hour? No. McDonalds doesn’t need to pay more than minimum wage and doing so won’t really be worth it for them. But thats because the skill level is low and theres ample workers willing to do the job ‘good enough’ for minimum wage. Turnover doesn’t really hurt McD since they can retrain people fast enough it doesn’t cost them enough to warrant paying more to stop turnover. Its a logical business choice on their part.

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avatar 8 Anonymous

I worked for a call center once in Pittsburgh where they paid representatives $15 per hour and gave them nearly free health insurance and other great fringe benefits as compared to about $11 an hour (or less) in other call centers. Their turn over was very low which resulted in more seasoned employees where were capable of resolving complex customer requests much more easily. That also improved the company’s reputation and kept complaints to a minimum.

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avatar 9 Anonymous

I have been with the same company for the past 28 years not only because they pay well and have great benefits, but the work is something I enjoy doing.

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avatar 10 Anonymous

It’s so important for companies to hold on to their best employees. High turnover can be extremely draining on staff morale and it creates an unsettling environment!

So yes, I do think it’s important to offer a great compensation package; and important to keep HR costs low. I also think it’s really important to offer a real career path to employees. Chat to them about where they want to end up long-term, what sort of responsibilities they prefer, and show them how you can help them work towards that. Learning new skills while being paid is invaluable, which makes sticking with the same company a lot more attractive.

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avatar 11 Anonymous

But then again, there are some people who work for the fun of it. I’ve had several offers from different companies yet I chose something a bit more laid back where I can work online while still fulfilling my duties. The pay is not that high but then again, I get to do things that I love. I even get to do some business on the side and it makes me a satisfied employee.

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