By definition, paying employees well means paying them above-market, not market rate. If you pay people market-rate, nobody writes home about the compensation. Market-rate is also not "underpaying" i.e. below-market.

Paying above-market rates is walking a tightrope. On the one hand, experienced employees who are well-versed in your systems and your organization are indeed worth more than market-rate (i.e. someone new), and compensating them as such will retain them. On the other hand, it also retains poor performers, who you want to steer to finding roles elsewhere. Being ruthless about firing fast is one option, but it's a deal with the devil - it erodes psychological safety among people who stay unless the firing is unanimously desired and there is a consensus among everyone who remains that it was necessary. So if you handle the firing wrong, you affect performance and social cohesion everywhere. If you pay market-rate, it's easier to just make someone miserable until they self-select out and find work elsewhere.

Unfortunately (or fortunately?), all successful startups pay above-market because equity compensation in the right company can be a life-changing amount of money. So most successful startups seem to successfully walk that tightrope.

▲

closeparen 3 hours ago | parent | next [-]

Even startups that beat the incredibly long odds to become successful mostly aren’t successful enough to make up for a long stretch of not earning BigCo RSUs.

▲

zipy124 8 hours ago | parent | prev | next [-]

> On the other hand, it also retains poor performers, who you want to steer to finding roles elsewhere

If paying people less encourages poor performers to find roles elsewhere, it encourages your high performers to do this even more probably...

	▲	solatic 7 hours ago \| parent [-]
		It really depends on the organization, its mission, the employee pool, and the local cost of living. Most software engineers are relatively well-paid compared to the wider labor market, even the engineers who are "underpaid". Kahneman's research showed that once you have enough money to pay your bills, making more than that has rapidly diminishing returns for your happiness. It's much more important to fit in - like your boss, like your coworkers, like your work, be recognized, have good work-life balance. None of that really requires above-market compensation. When a firm pays below-market rates, it's a sign of one of two things: either they're abusing people who can't find work elsewhere, or people are happy to stay in spite of it. The latter are often really good places to work. HN loves to complain about how money ruined the software industry. Let the people who will chase a raise from $180k to $210k go elsewhere. Let the people who want their moonshot at life-changing wealth go talk to a VC. There are other opportunities for people who realize that money isn't everything in life.

▲

mlrtime 17 hours ago | parent | prev [-]

[dead]