Recently I was offered a big (big is a relative term) amount
as pay package from a software company. While
I am still in the process of deciding whether to take up the offer or to wait
and look for other better offers, I thought it was worthwhile devoting some
time to pondering on this question which has been on my mind for some time – “How much an employee should be paid?” A
question whose answer every company needs to decide before hiring. But a
company’s answer to this question maybe driven by selfish reasons, and each
company’s decision will differ from others’.
Hence to answer this question objectively we will need to put more
thought to it. This essay is an attempt to finding an answer to this question,
through an objective analysis of facts ... well as objective as possible. I am
not an expert in economics, so my musings may not be economically correct, but
I am an observer of my country and my times hence I will try to look for an
answer from that point of view. Also since I have observed the Indian software
industry more closely than any other, my observations and theories will hover
around the same.
I think the question of The
Rightful pay package can be broken
down into 2 parts –
- How much does one deserve (to be paid)
- How much does one need (to maintain a reasonable lifestyle)
The second question is much more difficult to answer than
the first, and I doubt if it is ever considered by organisations in the real world
while deciding pay packages for employees. While the first question is more
likely to elicit unbiased and reasonable responses, the second question is
bound to succumb to subjective definitions of the word reasonable. Hence I will tackle the easier question first. But
before trying to look for answers it would be appropriate to give a bit of a background.
The Indian software
Industry - Since the 90s there has been a boom in software jobs in India.
So much so that a software professional’s life has become kind of synonymous
with the good life. Some people may disagree with my view, because often we s/w
engineers have been called cyber coolies and there is a section of people who
think exactly the opposite – that a software engineer’s life is a bad life. I
would say although this view exists, it’s in minority. I believe the
predominant view among the middle class is that software jobs are good and
software professionals lead comfortable and affluent lives. The primary reason
for this belief is the salary that software engineers draw and the percentage
of them living abroad. In India the biggest attraction towards a software job
has been its onsite opportunities or in layman terms the opportunity to work
abroad especially in the US. This has over the years also resulted in an
incorrect belief in the minds of people (who are not part of the s/w industry)
that the s/w engineers living or working abroad are surely better than those
that are working in India. This is not necessarily true, most software engineers
know it, but I will not digress into this discussion. With more and more
software jobs appearing in the market due to globalisation and the
profitability of outsourcing, the software engineer’s salary has been
constantly on a rise. This is also perpetuated by rising inflation and a
growing trend of consumerism in the cities. But a software engineer’s handsome
pay package has a little more to do with than just industry demand.
Hiring* - While
people in the software industry like any other industry are recruited based on
their skills and expertise, their salaries are not always proportionate to
their abilities. More often a software engineer’s salary is determined by his
previous salary and his ability to bargain (for more). Hence a secret mantra
(now no longer a secret) of earning more in the s/w industry is to keep
switching jobs. A person who has worked for more companies in a given period of
time invariably earns more than a person who has stuck with one company for the
same duration. This system I believe is grossly wrong and discriminating. A
person’s salary should be only proportional to a combination of his abilities
and years of experience, irrespective of how many companies he has worked for
or how well he can bargain. This system has led to glaring inequality in
salaries across the software industry and is being wrongly taken advantage of
by companies and employees alike. Most companies often do not bother to raise
the salaries of their employees more than a minimum percentage, unless they resign
and bargain for a raise. While the same companies will pay a new lateral
employee much more than what they pay to an existing employee with same skill
sets and experience. Another not so palpable evil of the system is that, it has
made people greedy. As some wise man
said – “A raise is a raise for just about 1 week, after that it’s just your
salary.” This leads to an insatiable desire to earn more, it’s never enough. One
is bound to ask the question then, why do some people keep working for the same
company for years at a stretch at all? Although the number of people working
for the same company for more than 5 years is quite less, but there is a good
number of people who stick with a company for 3-5 years. There are a number of
reasons for that –
- People are not adventurous. They are happy with the status quo and don’t want to make the effort to go and look for other jobs.
- Some people value job security more than a high pay package. This is seen more among the experienced people with families. Joining a new company has its share of uncertainties; some people don’t want that uncertainty in their lives.
- Some people, although a small percentage are actually happy with their jobs and salaries and see no reason to change.
Here I have not counted those people who are not good enough
to qualify/clear job interviews, they are holding on to their existing jobs by
virtue of having been worked there for some time.
How much does one
deserve? - But I have not yet answered the question – “How much does one
deserve?” There is no standard answer to this question even if we limit our
jurisdiction to the software industry. I am not sure how a person’s
contribution to a project/software can be quantified, but if there was some way
to do that reasonably this question could be answered. I am sure companies have
some justification and thought behind the salary structures they design for
different levels of employees, but I feel that justification maybe less
rational and more prejudiced. I will cite a personal example here. In my last
project I worked with a very talented and knowledgeable fresher (he was an
M.Tech though). My package was roughly 3 times his. If I take out the value-of-experience
factor, there was not much difference between his contribution and mine to the
project. If anything he was probably a better Java developer than me and some
others in the team. But just because he was a fresher he had to be content with
a modest package. I took this simplistic example because I could feel the
disparity closely in this particular case, the criteria for deciding the
salaries of higher management maybe more complex and to quantify their
contribution to the company more difficult. To sum up, I feel if a person is
being paid more than what his/her contribution to his/her company/project
deserves, he is being overpaid.
How much does one
need? - Now coming to the question of - “How much does one need?” or to put
in other words “How much is enough?” It’s a question frequently asked by
environmentalists and socialists and deliberately ignored by capitalists. The
definition for “enough” is relative; it is different for different classes of
people. Since we are talking about salaries here, I think any salary that lets
a person and his/her family maintain a decent and comfortable standard of
living and provides for all the necessities, should be enough. But here is the
problem. It is probably wrong to expect a person to continue maintaining the
same standard of living throughout his life and not strive to improve it if he
can. Along with that an economy following this kind of model is bound to become
stagnated and sooner or later plummet into recession. Hence answering this
question is considerably more difficult than the first. I have personally
experienced that the “enough” is often defined by the limits to my spending
capabilities. When I earned 15k per month, it was enough for me; I adjusted my
lifestyle to manage within my salary limits. I paid less rent and lived in a
modest house, I had a relatively cheap mobile, I used to watch morning shows at
PVR in the weekends and bought less clothes and accessories. But this was 5
years back. Goods and services have become dearer since then. To maintain the
same sort of lifestyle I would probably need 25k now. But not withstanding the
effects of inflation, I have managed to increase my expenditure constantly with
my rising income, and in the process I have discovered – “It’s never enough.”
Part of the blame for this realization goes to my ever increasing desires and
part of it goes to the rampant consumerism that modern India is experiencing. It’s
no longer just about providing for oneself and one’s family, it’s about showing
off one’s power of spending.
In a country where the disparity between the poor and the
rich is so huge, where 32 % of the population is below the poverty line but 11
Indians feature in the Forbes list of richest billionaires, and the richest
among them decided to flaunt this disparity by building a 27 storied house
maintained by a 600 member staff just for his family; I find this trend
disturbing. But then what is the solution? The only solution I can think of is
Govt. Regulation over salaries and spending. But that would make us socialists!
I am not sure if living in a socialist economy would be worse than living in a
capitalist economy. The entrepreneurs and industrialists who have lived through
the age of the License Raj would have something to say about that for sure.
I would end this discussion here. I have reached the limits
of my knowledge on the matter and my thinking abilities. I don’t think I
provided any convincing answers to the questions I raised. Hopefully with time
I will be able to refurbish my answers and present a more formidable case.
*hiring in other industries is probably done in the same
manner but I am not aware of that hence I will confine my discussion to the
software industry only.