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Competing for talent: the salary conundrum Competing for talent: the salary conundrum
by Joseph Gatt
2021-01-25 09:33:43
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A subtle aspect in economic theory is that companies compete to attract talent. One way they try to compete is by offering excellent working conditions.

But in times like the past couple of decades, where housing prices skyrocketed and inflation made purchasing power dwindle. That along with new technologies like smartphones adding to the long list of bills (electricity-including air-conditioning, gas, water, landline phone bill, internet bill, smartphone bill, insurance bills). That along with the internet and social media and pressure to consume high-end expensive products.

sala0001_400This means workers tend to set the priority on wages and money first, and working conditions have taken the backseat. Companies know that, and some companies engage in all forms of harassment and intimidation of workers that they think lead to more productive employees.

So when in the 1990s companies used to brag about offering decent, respectful working conditions for employees. At the new millennium, companies have been bragging about offering decent paychecks and benefits, but expect employees to burn the midnight oil and endure tough working conditions and rough motivation when it comes to working.

So companies have been competing for offering the highest possible wages. This puts SMEs in the backseat, because salaries should really be a reflection of any companies’ profits and profit potential.

So you have SMEs and very small enterprises being forced to offer high wages, coupled with a number of governments and states that keep offering higher minimum wage, up to 8-9-10 dollars an hour. High minimum wage is good for big business, bad for SMEs.

Ironically, those very socialist politicians who promise to raise the minimum wage to 15 dollars an hour don't realize that they would be killing small business and profiting big business with such standards. Indeed, big business could create all kinds of positions where they offer the high minimum wage, when smaller companies with low profit margins could not afford to pay any employee 15 dollars an hour.

So when companies compete with high wages to attract the best talent, of course the big companies are going to win. Smaller companies might hire talented people for lower wages, but the talented workers tend not to stay for long before they move to bigger companies.

Other big problem: a lot of small companies have this mentality where they think they can provide employees competitive salaries, but push those employees to the limits, because they expect employees to come up with ideas that can boost income and profit.

This logic is flawed, because most business models tend to have floors and ceilings when it comes to income potential and profit margins. If I start a grocery store for example, I can only, let's say, handle 50 clients a day, who can only, say, purchase 20 dollars worth of groceries on average, meaning that on average I'll get a 1,000 dollar income every working day, which translates to a 300 dollar profit per day. Add taxes and wages and bills into the mix. That's a ceiling because if more than 50 clients visit my grocery store, the grocery store will be too crowded, and people will move to quieter grocery stores.

You get the idea. Any small or big business tends to have floors and ceilings when it comes to profits and income. To little profit, they have to shut down. Too much profit, they have to expand, or they get too crowded.

All this to say that the mentality according to which “if I pay my employees higher wages they will contribute to higher profits” is flawed.

High wages also lead companies to be more likely to be dissatisfied with their employees. Why would any company be dissatisfied with any employees? Here are the main reasons:

-Profits are not going up despite the high wages.

-Employee attitude and emotions. Some employees could be too relaxed or too emotionally detached despite their high wages. Or too high-maintenance and aggressive.

-Personal differences with employees. There are often clashes of personality.

-Organizational issues. The employees disturbs the supply chain and the organizational chain.

-Employees don't deliver the tasks properly. That can be a problem for any employer.

Unfortunately there are no solutions right now for this problem. My personal view on this is, if that were me, I'd choose to live in a quiet small town with cheap rent and engage in a stress-free, middle-income trade.

But, rent being what it is, housing prices being what they are, and consumer prices being what they are, employees have no choice but to demand high wages to get by and survive. And that leads to all the problems described above.

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