Would you rather be slightly over-compensated or slightly under-compensated?

When I ask this question to management students and young professionals, many respond with the perfectly reasonable counter-query, “Why would you accept less when you could get a little more?” This response provides me the perfect opening to expound on an argument that may be counter-intuitive to some people: why the under-compensated employee is likely to win in the long run.

From my perspective as a CEO, I see the under-compensated employee as providing more value. I’m, therefore, a little more sympathetic to their concerns and requirements, and my sense of fair play compels me to offer them the more interesting or lucrative projects. The result – the employee usually ends up learning about the new and more challenging parts of the business. This experience, over time, makes them progressively more valuable.

Let me use myself as an example. During the six years (1989-1995) that I worked at TIBCO, I was, by a fair reckoning, under-compensated by about $10,000 every year. While I sensed my bosses knew all along that I was being paid less than what I deserved, they made up for this by giving me tremendous freedom, sharing their business knowledge and secrets, including me in the most interesting and diverse projects, and encouraging me in dozens of other ways.

I guess this was their way of showing gratitude, and the experience I gained has helped me tremendously over the years. I may have ‘lost’ $60,000 in current income … but received so much more in return! My experience at TIBCO, and their equity compensation, gave me the courage to start TEOCO – and eventually create an enterprise worth hundreds of millions of dollars.

Now imagine how TIBCO might have treated me if they believed that I was over-compensated. I’m guessing I would have been treated more like a private contractor. While contractors are usually paid more, they are almost always engaged in tasks that tend to be mundane and repetitive – not in those that require new learning. Since the contractor costs more, no company wants them to experiment with anything unusual or innovative at their expense; they want them to complete their assigned tasks quickly and move on to the next one.

Most companies treat their over-compensated employees in much the same way. It is the under-compensated employee who is often picked for the more difficult or challenging tasks, and over time, it is this under-compensated employee who goes on to become the real winner. In the end, compensation is not just about your salary, it is also about opportunity, growth, respect, and joy!

With special thanks to Srinivas Bhogle for his support and contribution to this project.