Job Offer with Unbelievable Pay Hike? Congrats! But, Do These 3 Vital Checks

Okay. One more resignation. The reasons are again the same.

  • More money. Much more than here.
  • Of course, the long term career seems clearer there.

If one thing that is killing Indian technology sector, it is attrition. There are many reasons which I would put forth in another post. But this post is all about money.

I did not say anything. Mind was racing backward as I lean forward to hear him out. I was trying to put the experiences into words.

Most of technology companies in Bangalore provide R&D service. They bring money in by charging headcount per hour, per month or per year. This is the case irrespective of they calling themselves as product companies or service companies. This model exists in other countries as well. There are technology centers around the world across industries. This brings higher accountability because working for internal customer and getting local revenue would increase accountability and reduce pain of top down management.

Most in India are in the range of 20 to 30 USD per hour. Actual rate may depend upon industry. Not too different though. Then here are the basic questions:

Can they really pay higher?

If everyone keeps getting salary hikes, the cost has to go up. This is because the technology sector is quite young, there is no retirement in true sense yet. With every passing year, the cost of workforce goes up. But the charge rate does not go up. No global customers would accept higher rate. If this company and your current company are in same industry, then this does not look very affordable.

The organization do show the moon while staying grounded in reality. They show a ‘potential pay’ which has an equation with variables like individual performance, org performance, business unit performance etc. The actual pay is lower than what is on paper. But trust me – It feels good to have higher pay on paper ! Some of the organizations have this gap outrageously high. You can call this even as fraud.

For now, Let us ignore this part and pretend that the offer is real.

Is this sustainable?

This is possible. IF –

  • Sufficient retirements at higher cost bracket: People need to keep retiring or quitting themselves before retirement age.
  • Rate can go up:Somehow, the charge rate I mentioned above can go up. However I have not seen this generally happening. There is always a pressure to charge less.
  • Increased productivity: Somehow the productivity has to go up. Somehow dramatically the overall results should improve significantly. Everyone should get convinced that these guys are worth paying much higher. This typically does not happen in spite of many initiatives. There is another way, though.
  • Artificial boost in productivity: There are work cultures where people work for 12-14 hours and bill for 8 hours. Then the value of each hour looks higher. We can ignore the work-life balance factor for the argument. But , there is cost to extended work hours.  Everything needs to be outsourced including parenting. The quality of early age mentor would definitely show up at some point in time as economic factor. Healthcare cost, Personal spending without sufficient time to research etc. would be much higher than typically thought to be. Overall, the increased to pay due to this kind of productivity may lead to slight increase in salary. But does not help the employee’s long term economic health.

Nothing really seems convincing. How do They Do It Then?

Before I explain, let us look at a simple graph. Let me ignore all factors other than salary, age and charge rate. It just shows two graphs on how the salary grows for one individual at two companies.

SalaryBracket

As I mentioned, I am assuming that the “sustainable” entry level salary and retirement salary are about the same, across companies. I say sustainable because in each industry there are multiple players. They offer similar products. They have similar costs and margins. The R&D spending has to obey this math. Hence the salaries have to correlate.

How do they pay higher?

It is likely to be one of the three common cases:

Higher position.The position actually is higher. But the companies have different way of structuring their organization. The responsibility and power may not map one-to-one. There is no exact way of knowing whether it is actually a higher role.

Same Role: But higher pay. It is the same role, but paid higher. The company may be very desperate for talent and ready to pay higher. This could result in wage inflation in the market, but that’s okay with the new potential employer. If the organization does not survive today, nothing matters.

Same Role, Higher Pay, Higher Employee Band:  To comply with internal salary brackets, they may be pushed up to higher level upon hiring itself. Nice? Not really. If someone works at higher level, won’t the organization expect more from these people? Is ‘higher expectation’ well defined? Not Really.

Whether they give higher role or not, the higher salary would take you closer to the higher bracket soon. Then the economics of the business does not make sense unless you produce more ‘measurable’ business result. In R&D, is it possible? Do the environment of the work and constraints allow this? If so, what is stopping others for achieving better?

These seem not so clean ! How do they really manage cost then?

Mainly there are two decent ways and 3rd not so good way:

1. Normalize salary gradually : Pay higher initially. This may be higher than company average. Gradually, over couple of years, bring the salaries to the company average level. By then, the employee would have settled down.

2. Stop giving pay hikes after a while !

As mentioned, the economics would suggest you that there has to be salary level which is the higher limit. Beyond that, for the given number of people, there is a limit. You are an outlier.

You probably now need to really prove your worth. Then the question. Our motivation is always – hope. It is nothing about what we have today. If there is nothing more to look forward to, where is the motivation?

3. Just fire the individual. Or if entire business is not doing well enough, lay off:

What to do then? How should I decide whether to take up an offer?

These are not just about R&D service. True just about everywhere.

1. Check the charge rate:

If lower than your current organization, probably not worth it.

If higher, how is it sustained? May be, the organization is more efficient, by design and work culture.

2. Business value of the role:

If the business output of the role is higher, then it is an easy decision. It could be due to the higher number of people working with you. Or it could be a product whose revenue forecast is much higher than the one you are working n now. It may be the skill you have. Irrespective of the organization the skill is always in demand.

3. How is the salary in the target band of the employee: Is it on higher side?

This is to manage the expectations. If you are taken at premium, that means the organization has compulsion to hire you. There is extra expectation that others can not fulfill. It is a fair expectation? Or someone created a mess and you need to inherit and own up.

If it is about in the mid-range it is better. People are almost equally smart everywhere. The constraints of the organization affect the same way as the existing current employees. If these employees come across the salary of the new person, the co-operation reduces. That will not be very nice.

The answers to these three questions should give an idea of how to approach your job offer.

Check these and have more control over your future.

  • Karthik

    But there are some companies where they set a budget for the positions. Though we have required skills for the positions open, they are not ready to pay as they have some standards. 4 years experienced candidates are earning not even 4 lakhs per annum. And if they move out for a change, the companies are not even paying 30% hike on the current pay. Whats your say on this???

    • Ishwara Bhat

      Great point.
      In current market situation, I would be very surprised to see this. Initial years fetch a factor of 1.2 to 2 against the number of years.

      When people are interviewed by senior manager or HR level, the mind constantly compares the candidate against the existing roles that fit and also against internal people existing in that range. If candidate is perceived to be more promising than people existing inside, the candidate may get higher (or if market is tight) and vice versa.
      If giving higher could disturb the ratio of internal people, then companies might refuse to pay higher on those grounds. If paid higher, it would unsettle people inside and would force a correction. It could snowball into bigger issue as the word would spread.

  • sena

    Thanks Ishwara. Q and A type made it simple and keeps me continue reading. Good read for me today. I wish graph could have been bit intuitive.

    Does it mean that all companies in India work based on hourly billing rate ? Don’t we have any true product based home grown ?

    • Ishwara Bhat

      I will fix the graph. thanks!
      About the hourly rate, I do not mean to link this with product or service org mindset. Nor would I claim that one is better than the other. Have worked with great people in both kinds of organizations. This hourly rate is merely the topic of administrative interest. Every company need to have locally registered entity. It needs to maintain its book. For govt needs it needs to maintain some percentage local profit. For global MNCs, it is best achieved with a cost center and hourly rate. This seems to be the norm across the globe.
      Only different thing in India is the expectation of big hikes YoY and upon job switch. This is when financial discipline of the companies goes haywire. In above post, I tried to present numbers to show that big rises may not be sustainable.

      This question would require a separate post. I know some tech startups which are true product organizations. Also the old economy conglomerates would fit here. I also know many good service organizations which focus on niches and keep improving the specialization.