Understanding the Discrepancy in Salary Offers: Why Companies Offer 1 Crore Starting Packages but Resist 30% Hikes

When it comes to recruitment, many organizations are willing to offer starting packages that seem astronomical—such as 1 crore (approximately 1 million INR). However, for experienced professionals, the annual hikes offered often fall far short, with a mere 30% increase being commonplace. This article explores the reasons behind this discrepancy and discusses the strategies companies use to manage their workforce.

Why 1 Crore Starting Packages?

For high-value candidates and positions that require specialized skills, a starting package of 1 crore can be justified. These individuals may be invaluable due to their extensive experience, unique skills, or the potential impact they could have on the organization. By offering a high salary, companies are essentially competing for top talent in a highly competitive market. This approach is particularly effective in attracting and retaining key players in their respective industries.

Retention Strategies and Financial Constraints

While large starting packages are a powerful tool for attracting new talent, retaining existing employees can be a different challenge. Companies often prefer to retain their current workforce and offer them competitive salaries and perks to keep them motivated. However, providing a consistent 30% hike to all employees can be financially unsustainable and might not align with the organization’s goals or financial health.

Large companies, especially Multi-National Corporations (MNCs), have a different perspective. They recognize that increasing salaries by 30% for all employees, especially in smaller increments, can significantly strain the company’s budget. In fact, this approach can lead to financial strain on the company, potentially impacting other areas such as research and development, marketing, and infrastructure. Therefore, it is more feasible to offer substantial hikes to a select few lateral employees while maintaining a more conservative approach for the broader workforce.

The Role of Resignation Threats

One of the key factors that influences the decision-making process of companies regarding salary hikes is the threat of resignation. Employee turnover is a significant cost for any organization. If a company were to increase the salary by 30% for a specific experienced professional, it could trigger a chain reaction of resignation threats from other employees demanding similar treatment. This could eventually lead to a mass exodus, leaving the company in a vulnerable position.

Companies often avoid this by strategically retaining their current employees. This approach is more practical and ensures that the organization maintains its internal dynamics and culture. Small hikes may be more feasible and easier to manage on a financial level, while also maintaining a stable and happy workforce.

Small to medium-sized businesses and startups often adopt a different approach. Due to their limited resources, they must be more strategic in how they use their budget. These organizations frequently find that retaining key employees is more cost-effective than constantly searching for new talent. By offering competitive salaries and ensuring that the employees feel valued and recognized, smaller firms can create a loyal and motivated workforce.

Conclusion

The disparity between starting packages and salary hikes is a common phenomenon in the corporate world. While large starting packages are used to attract top talent, salaries for experienced professionals often remain level due to financial constraints and the need to retain the current workforce. Understanding and pragmatically managing these dynamics is crucial for any organization to maintain its balance and achieve its strategic objectives.

For organizations to remain competitive and effective, it is important to strike a balance between attracting new talent with attractive starting packages and retaining existing employees with fair and manageable salary hikes. By aligning their compensation strategies with their financial capabilities and organizational goals, companies can create a sustainable and productive workforce.