The rightful package

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 –

1.   How much does one deserve (to be paid)
2.   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 –

1. 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.
2.  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.
3. 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.