Exploring the Factors Behind Low Compensation for Employees by Some SMEs.

Am writing this article after a comment on a job posting I shared on a social media group, as a recruiter I usually have to fill positions that my clients have a hard time filling, to keep my clients, I have had to come up with innovative ways to fill these positions. One reason these positions are hard to fill is because the client has limited funds to offer a decent wage this especially so because they are startups with limited funds to hire and fill positions. These positions have to be filled for the SME to survive.  The position I shared was for a client in the hospitality industry, some of the viewers of the posting left these comments. To understand the context the position was for a Supervisor in an establishment “Seriously 12k 14k it’s waitress salary for sure supervisor actually is a manager” there was another comment “Hiyo ni salary ya day watchman”. I really appreciated the comments because it meant my ad was getting views and I might be able to gunner a few applicants to choose from. I also understand the comments and empathize. I however feel the need to explain this low wage offers hence this article. Having dealt with the person looking for the employee I feel the need to list a couple of reasons this person and others offer low paying jobs.

1 Location of the Job

2 The revenue expected from hiring that employee

3 The Organisation’s Budget

4 Government Policy

5 Size of the workforce

6 Risk and Uncertainty

7 Flexibility and Benefits

Location of the Job

When I asked one of my clients one very passionate about education what he was paying (he was looking for teachers for a private school in a rural setting), he started off by saying “in this area they only offer this much because one can get very cheap accommodation” usually I let clients explain without interrupting, but clearly in such a school even the parents would only be able to afford much lower tuition, but also given cost of living in terms of foodstuff would likely be much lower. On further communication with the client he insisted that he would love to hire well experienced and competent people if he could afford it, he was willing to pay a much higher wage and lower his profits to achieve this.

Revenue Expected from Hiring an Employee

SME’s have limited budgets and usually most are injecting personal funds into the endeavor, they have to balance what benefit they will gain from hiring the employee in relation to other costs, increase in sales garnered from the services of this employee and time it will take to start getting those benefits. Some comments on the ad were and I quote “they should close down” this person clearly does not have an understanding of the entrepreneurial spirit.

The Organization’s Budget

When dealing with clients from startups and other small business I have realized that not only are their budgets limited but they are also not well thought out. These clients are usually juggling a lot of responsibilities and probably have not made clear budgets in regards to hiring new employee so there is the tendency to reduce their overall risk by offering a much lower salary. This is unfortunate because getting the right employee at the right price might be just what is needed to get the business out of the red.

Government Policy

We cannot have really evaluated this low wage issue without discussing Government policy, poor governance is what leads to low economic activity, hence lower purchasing power additionally inability to enforce minimum wage standards and lack of support for SME’s which are the backbone of all economies around the world.  In Kenya the framework for financial support for SME’s, tax breaks etc is basically broken, there is no clear and effective mechanisms, poor tax collection management and corruption are the key culprits. I mention corruption because as citizens we have come to accept corruption as the shortcut to life, recently I talked to a fellow entrepreneur who explained he would rather bribe the local parking enforcer, than pay his dues to the county government because they would end up eating his money, however this corruption is much related to why there are low wages. I will leave corruption as a topic for another day. 

Size of the SME’s Workforce

With larger organizations there is a benefit of economies of scale that are not available to SME’s with a smaller workforce.  A good example is when it comes to customer service, smaller organizations are not able to offer efficient client service leading to lower sales and revenue. The larger workforce means diversity in skill sets, specialization, employee development, higher productivity and sales which allows for higher wages. With the right strategies in hiring however this can sometimes be overcome.

Risk and Uncertainty

SME’s face a lot of headwinds and are therefore not to able to freely spend money on employees, they have a larger threshold for failure, access to limited financing, small shocks to the local economy eg in Kenya exchange rates, sudden changes in economic policy also impact small business in a devastating manner. A few years ago I had a neighbor who was very big on the small gambling machines that were all the rage at the time, when government banned those machines it was totally deva sting to that entrepreneur he lost everything including his family. With such challenges it is easy to see why SME’s are mainly unable to offer comfortable salaries.

Flexibility and Benefits

SME’s also offer lower salaries on the understanding that there wont be as much pressure to perform, that you are not all that experienced but they are willing to handhold you in return to for a lower salary. They might also offer a more flexible schedule and are willing to accommodate the normal human failures such as tardiness and a less formal and stifling work environment

In conclusion, we understand your frustration with the low wages being offered, but remember they are only offering that because of the particular economic condition of the local economy and because its what they can afford. In my dealings with a diverse set of clients the underlying factor has been that wish they could offer much more to the right employee but they can simply not afford to, if they are to survive. The job market remains very competitive and to get hired at a larger organization you have to make sure your job application is super competitive, make sure you have an outstanding and well written C.V. https://careerassociated.com/resume-writing-and-advise/ , sacrifice and work for that lower wage for a while so you can get excellent experience, when working for SME’s at an entry level you get exposed to much more and finally upskill, upskill whenever possible.