Who Wants to be Paid the Minimum Rate?

by Chuck Csizmar - Jan 16, 2010

Anybody raise their hand? Of course not; no one wants to be paid at the minimum rate of anything.

It's one thing to hold down a minimum wage job, paid the government mandated rate, but it's another 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?

Minimum Value

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 candidate only meets the minimum qualifications for the position.
• The employee being promoted has a salary low in their current 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 presently paid low in the same salary range. In other words, internal equity is an inhibitor of higher pay.

Hopefully the company will keep an eye on this employee, so that their status as "minimum paid" will be as brief as possible.

Given the above, what must it mean to an employee when you pay them less than the minimum; less than the announced lowest value for the job? It lets everyone know that to you (the employer) their value is even less than what you've told other employees you would pay for minimally qualified employees.

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 will receive a similar value from them (performance) in return.

Paying Less than the Minimum

So why would they 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 indicates.
•  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 actually perform before the pay them the minimum rate. In this case the manger puts the employee into the position, with full responsibilities - but without paying for it.

The question you're all asking is, do companies actually follow through and quickly raise such affected employees to the salary range minimum? I'm afraid the track record is spotty, at best.

A Bitter Harvest

Without off-cycle intervention an employee at the minimum almost never reaches the midpoint of the salary range. Consider this: an average performing employee paid at 80% of the midpoint (a standard minimum rate for a 50% salary range spread) will receive a series of 3% - 4% annual merit increases, while the salary range will likely raise at 2% or more each year. Under such circumstances how long will it take for the employee to move a net 20% to reach the midpoint? 8 Years or more. 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 lot less time than 8 years.

Low paid but satisfactorily performing employees will see their market value increase faster than most employers raise their pay - thus making this group more susceptible to being lured away by competitors, or any employer willing to pay them what they are 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 the new range - without providing an eyebrow-raising increase. Who has the budget for that, even during good times?

So look to the bottom quartile of your salary ranges and find out who is 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.