Reasons for a company to offer a lower salary than the standard, without improving their benefits?

Question

This is stemming from another thread I started Company has low-ball job offer, refuse to negotiate, is this a common hardball negotiation tactic? Where a discussion in the comments was sparked about companies paying significantly below market value..

Lets say you are applying for a job at Company A and Company B. The job at both places is essentially the same thing (same job title, same type of work, similar hours, same prerequisite skills etc...) and you receive a job offer from both A and B.

Both job offers have the basically the same benefits package, vacation-time, retirement and 401K matching etc... and both companies would be a similar commute. BUT Company A offers approximately 30% below range of X-Y which is the standard salary range and will not negotiate any higher (fixed salary). Also, annual raises are around the standard 2-4% so there is not a 6 month perforamnce review/probation period where you make significantly less until you haven proven yourself and get a pay increase. Company B offers within the typically salary range for somebody of your level of experience and for that job description in that area, with the similar standard for pay increases of 2-4% (obviously excluding big promotions etc).

Both companies have a lot of employees (say 5000+) spread across a few countries and are well established (15+ years). So no start-ups or small companies that are unable to compensate appropriately.

What are some reasons that Company A can offer significantly less and still expect people to accept their job offers? What would differentiate them from the other companies significantly enough to expect people to take a 30% pay cut from what they could be making? (Potentially even a pay cut from their current salary)

How are they able to keep a competitive workforce?

Note: Asking because a friend of mine is in a similar situation to this during their job search and I want to know what sort of reasoning that companies have for these types of decisions, and how they can still employ people competitively.

Answer 1

I think you may have hit the nail on the head:

there is not a 6 month perforamnce review/probation period where you make significantly less until you haven proven yourself and get a pay increase.

If there is no probation period where the company can fire you without notice and without cause, then they are more or less stuck with whoever they take. If they make a mistake and you're not as good as they thought you were, then there's no easy way to fire you. The other company has the probation period and has the ability to fire you if they don't like you, so they can afford to pay the big bucks to only the people they actually want to keep, and get rid of the rest.

That's one possible reason anyway.

Answer 2

What are some reasons that Company A can offer significantly less and still expect people to accept their job offers?

Companies have more leverage in most job negotiations. Most of the time, people don't conduct a thorough job search and don't have multiple offers or a strong potential for multiple offers. I've met a lot of people who only look for a job in desperate situations (being unemployed or miserable). These people will often take less.

What would differentiate them from the other companies significantly enough to expect people to take a 30% pay cut from what they could be making? (Potentially even a pay cut from their current salary)

Most of these people wouldn't work there. I've never actually met someone who left a job for a pay cut near 30%, and my guess would be that most people can't afford to take a 30% pay cut. In fact, the times I've known people to take less money for a new job have all been times of desperation. Two were essentially rage quitting and one was sure he'd get laid off, and none of them were near 30% pay cuts.

How are they able to keep a competitive workforce?

In my experience these companies don't. There are some highly skilled people who value work-life balance over getting paid well, but the truth is there are a lot of companies that offer both good pay and work-life balance and most people figure this out at some point in their careers. These companies end up hiring a lot of people who will accept the lower salary because they can't get paid more, and they end up experiencing excessive turnover among their more talented employees.

Answer 3

What are some reasons that Company A can offer significantly less and still expect people to accept their job offers? What would differentiate them from the other companies significantly enough to expect people to take a 30% pay cut from what they could be making? (Potentially even a pay cut from their current salary)

Both companies have a lot of employees (say 5000+) spread across a few countries and are well established (15+ years). So no start-ups or small companies that are unable to compensate appropriately.

The evidence (5000+ employees) shows that they are successful. You also have to make sure you aren't assuming that all positions are paid below the "average" based on your recent experience. The company is aware of how much time and money they spend to attract new employees. They are aware of their turnover rates. They know what percentage of new hires stay x years.

If they feel that they are under performing in those areas, they will adjust. But if they are happy in their statistics then they don't see a need to make adjustments. They can also pay more for different positions, or different cities; they do this based on how hard it is to fill positions in that city.

Also keep in mind that a potential employee makes a decision based on the current conditions and their needs. If they applied a few weeks later the companies to pick from will be different.

Answer 4

What are some reasons that company A can offer less

Theres a couple explanations for this (Candidate point of view)

• Lack of experience
• Desperate for a job
• May see it as easier work

People when they have lack of experience but have the skills, then they may accept a job just to get experience. On top of this people can apply for jobs for months on end, this can eventually end in a candidate becoming desperate. Finally the applicant may feel there is easier work to be done or a more relaxed environment/prefer one company over the other.

People may expect pay rises when work is completed to a standard that Company A is happy with and this invites progression.

How are they able to keep a competitive workforce?

Short answer: They can't

A lot of companies tend to abuse their employees financially just to get work for cheaper, it's part of making money. Some people become content and do not look for new jobs and some people do indeed end up moving on. Overall there isn't anything that's more appealing from Company A but there are a lack of jobs in the world and if there's one going some people have to accept it.

Answer 5

I like to compare job searching to situation like calling the HVAC repairman or plumber. There is a local repair company that has really low reviews. One stars across multiple review sites and with the same complaints that they charge way too much and don't repair correctly. Yet this company is so massive that it is able to advertise locally on TV and papers. How is that possible?

Then it dawned on me, nobody researches companies until after because they are in a desperate situation. That's how these people thrive with people in bad position and requiring immediate service. You don't shop around for AC repair when it's 90+ degrees in your house. You just call what you see first or who can come out first.

Jobs are the same. In your sample situation, company A might appeal to people looking for a job. If they can get 1 year of service it is a good deal for them and don't have to worry about fighting pay raises when they can simply hire a new person.

It is highly doubtful the company would wait to see if you're a good fit then give you a huge bonus. I found that companies tend to promise big rewards but rarely follow up on it.

It's likely people go to company A, realize they made a mistake, and go to company B that pays better. Meanwhile company A got work out of you and can now move on to hiring.

Answer 6

What are some reasons that Company A can offer significantly less and still expect people to accept their job offers?

You said yourself in your other question that Company A offered a culture that "checked all the boxes" other than salary. ("Their culture is awesome (very family-oriented) and I already like a lot of the people I have met. Long story short, it knocked everything off my checklist for what I wanted in a place of work. ")

There are many aspects that can make a job appealing other than just salary.

For some, company culture is extremely important. Commute time may be important. Some prefer to work in a laid-back environment while others prefer a faster pace. Some want to work in an open-office setting, while others need a more private workspace. Some companies provide more training. Some companies offer more opportunity for advancement. Many times it's about the people as much as about the salary.

There's a concept called "satisficing". At some level, a good enough salary is good enough for some folks so that they can comfortably look at other aspects of a job, rather than trying to maximize the salary aspect.

There is always more than one path to success.

And some companies are willing to accept more frequent turnover. I once worked for a supermarket that was known for paying higher than the norm. They tended to hire workers who stayed around for many years. One of our competitors was known for paying minimum wage. They tended to hire workers who didn't stay around long. The competitor was very good at quickly hiring and training workers, and never had a shortage of young applicants. Two different business models - both successful.