Sunday, March 11, 2007

How much should you be paid

In this age of IT revolution, companies are competing with each other in trying to pay more for candidates. I have seen people being paid outrageous salaries given their skills sets and educational qualifications. Companies try to pay more to retain existing employees or to lure new employees. Personally I would not want to be paid more than what I am worth to the company; neither would I want to be paid less. It is reasonable to think that I provide some value to the company and that value can be translated into monetary value because money is supposed to be indicatory of the value transferred during any given transaction.

Some people get paid more than their worth while some others get paid less. It is rather easy to deduce why some people are paid less - it is probably because of the supply-demand relationship or simply because the company is trying to minimize costs. I am more interested in analyzing the reasons why companies pay more than an employees worth. The IT market is again a fledgling market. The supply of projects and the prospects of new projects far exceed the availability of companies and in turn the number of people who are available. This then means that companies would be making larger margins than they are expected to make in a mature market. So companies are getting paid for more than what they are delivering. A share of this premium on the value is simply transferred to the employees.

Consider such a company which has been over paying its large roster of employees to make most out of a young market. Now suppose the market matures and companies start getting paid according to the true value of the delivery then it is possible to think of a scenario where the company starts making less money than they are giving to the employees. At this point the employees would have to decide to get paid less than what they are making or quit their jobs or even get fired. So in the long term high salaries wont last theoretically. But the issue is we dont have any perfect mature markets. By the time one market matures another one will come up and start growing. So we may never see a equitable distribution of salaries.