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Are SMEs Shooting Themselves in the Foot by Paying Their Employees Lousy Salaries?

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Joanne Poh

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“If you pay peanuts, you get monkeys,” goes the old saying. And many SMEs are indeed getting the short end of the stick due to the low salaries they offer in the name of saving on costs. And often, offering the job to the lowest bidder has even more depressing consequences for struggling SMEs.

From service staff who struggle to understand their customers’ instructions to sloppy work in the office, SMEs are attracting workers from the bottom of the barrel. While many SMEs maintain they can’t afford to raise salaries, here are some ways paying low salaries is hurting, not helping them.

 

They cannot attract the best workers

It’s safe to say that most workers in Singapore aim to work for the big MNCs, which are perceived as offering not only higher pay but also better working conditions.

In a recent survey, 72.1% of the SMEs polled complained that the small talent pool of local workers made it difficult for them to find good employees, while 64.2% complained that the salaries demanded by many made them out of reach.

Another survey revealed that workers in small companies were more likely to work for an excessive number of hours. SMEs are often shorthanded, and workers are obliged to contribute even more when their colleagues go on leave.

Based on the above, the ability of SMEs to attract the most competent workers is low. Unless they can offer either higher salaries or better work-life balance, the average worker simply has no incentive to join an SME except as a last resort.

This is a problem in the professional services industry, where SMEs are often viewed as being unable to match the standards of their larger counterparts.

In addition, hiring a less competent worker at a lower price often means they are unable to cope with the workload, meaning SME bosses end up either having to hire more workers to do the same job, or running their existing workers into the ground.

 

High attrition rate

Convincing good workers to stay for the long haul is even harder than finding them in the first place. According to 48.5% of local SMEs, the high attrition rate amongst local workers presents a huge challenge.

If they look hard enough, SMEs are occasionally able to find motivated employees, often young, passionate fresh grads who have no choice but to work for lower wages due to their lack of experience.

But the problem is that truly good workers usually have no shortage of opportunities, and whether they get aggressively poached by companies willing to pay more or decide to leave of their own accord, SMEs often find themselves scrambling to replace them. In fact, having to retrain workers was cited as a huge obstacle to innovation.

Due to the rising cost of living in Singapore, many workers consider job hopping necessary in order to avoid having their earning power eroded by inflation. In fact, as we discussed in an earlier article, HR experts recommend staying in a job for not more than 3 years, one of the major reasons for this being the fact that salaries tend to stagnate due to poor annual increments.

 

Should SMEs raise their salaries?

While many SMEs, particularly those who like doing things the “traditional” way, are reluctant to raise salaries in light of rising costs, this might be detrimental to them in the long run.

With a reliance on low cost, often less effective and frequently transient labour, companies’ standards slide, and they are forever trapped in a vicious cycle of producing low quality products and services.

TSMP, a mid-sized boutique law firm in Singapore, offers newly-called lawyers an astronomical $7,000 starting salary, as part of its strategy to attract talented young hires, most of whom tend to get divvied up between the four largest law firms in the country.

While there’s no doubt that paying top dollar will get you a bigger slice of the talent pool, whether or not such hiring practices will foster loyalty depends on what the company can offer as a whole.

 

It’s not always about the money

Offering salaries significantly below market rate in some industries, it’s a foregone conclusion that SMEs have little hope of attracting and keeping the best workers unless they rethink their HR strategies.

However, even companies that pay high salaries become the victims of high attrition rates if they slave-drive their employees or don’t offer opportunities for advancement.

In fact, studies have shown that motivating employees intrinsically (ie. by helping them to find job satisfaction) rather than extrinsically (ie. by motivating them with money) not only drives them to do their jobs better but also makes them more loyal to your organisation

While offering above market-rate salaries might be beyond many SMEs, at least attempting to match average industry salaries can go a long way towards boosting the quality of job applicants and pulling the company out of the pits of mediocrity. However, beyond a certain point, throwing more money at your employees is not going to improve their performance or generate loyalty if you’re unable to create a positive work environment.

Do you work for an SME and do you think you’re being fairly paid? Let us know in the comments!

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Joanne Poh

In my previous life, I was a property lawyer who spent most of my time struggling to get out of bed or stuck in peak hour traffic. These days, as a freelance commercial writer, I work in bed, on the beach, in parks and at cafes, all while being really frugal. I like helping other people save money so they can stop living lives they don't like.

  • Axel Dinesen

    You invest in your employees as you invest in the future