Why Do Companies See Salaries as Expenses Instead of Investments in Their Employees?

Today, every organization considers employees as an asset. However, when it comes to the negotiation of salary, why is it that they consider it an expense instead of an investment? What makes them so blind that they cannot identify the efficiency in an employee and only offer a very low pay structure?

Thank you.

Employees' expectations cannot always be met by every employer. What do you mean by a low pay structure? Every organization has its own policies on pay scales. It is incorrect to generalize. There may be sporadic exploitations, which I agree with, but why would anyone join a company where the pay scale does not align with their qualifications and experience?

Regards,
Pon

I am just a first-year MBA student. I hope I can share my views with you. Though I am not an employee yet, if I say anything silly, please forgive me.

Even if you buy an asset, you may hope to get some output from it, or the asset value should be worth it. The same case applies to pay structures too. Organizations will also look for the same. Even if they initially offer you a low pay, I am sure they will increase the pay scale once they find efficiency in your work.

Regards,
Amrith

Actually, the pay scale depends on the top management of the firm. When an employee accepts the salary, HR expects the candidate to be worthy of that salary. If you want a higher salary, consider looking for a job in that kind of market and state your expectations when the interviewer asks.

Pay is decided based on the budget for the role. This is arrived at after extensive research on skill sets required, market correction, parity, and urgency to fill the position. You will understand the mechanism as you work along. It is not what it seems from the receiving side.

The employee is free to choose to work for that pay or leave for a better role. An individual is required to weigh their requirements towards the earning potential vis-a-vis the market standard and then build the expectation. High salaries are great initially. However, it's the medium and low-range salary earners who make it big, for the fact that they remain easily employable.

Regards

I think it is a very important point that you have raised! Nowadays, except for a few employers, others are exploiting employees; it may be in terms of time, work, salary, etc. The Factory Act and Minimum Wages Act came into existence to protect employees from such employers. I think if employees form unions, there is no harm unless it works fairly and is not politicized. There is also a need for the Fair Wages Act because an employee is like a product; if anybody is ready to offer more, the employee must consider leaving, then only will employers think about employee benefits and welfare.

Regards,
Vilom Mane
A very junior Training Officer
Gujarat
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Great point raised. Many times, HR feels that they have to offer a certain amount, which might be limited by budget constraints or personal points of view. As candidates, it's best to avoid companies that do not offer our minimum expected salary. It's advisable to steer clear of interviewing with companies that do not disclose their salary upfront and mention that it will be based on experience and qualifications. This ambiguity often leads to misunderstandings. For instance, an employee may expect a salary of 5 LPA based on their experience, while the company may have a maximum limit of 3 LPA.

To avoid dissatisfaction on both sides, employees and employers should have a clear understanding of their respective limits. Employers, who advertise and invite candidates, should provide a detailed job description including the salary range to attract the right candidates. Notably, when reviewing job postings on naukri.com, most mention that the salary will be commensurate with qualifications and experience.

You have raised an important topic that is necessary for every HR professional to consider. No good employer sees the salary of employees as an expenditure or burden, unlike other expenses incurred on factors of production such as rent for land, maintenance of machinery, interest on capital, etc.

Everybody knows that employees are human assets, and whatever expenditure is incurred on them in terms of salary or perks, it will definitely come back with attractive returns. Despite having other resources at an optimum level, no employer can produce articles or services without employing the human factor. With low pay, good work or performance cannot be expected from employees. Therefore, the output (performance) of an organization will always depend on the input (salary) bill of such an establishment.

Thus, no good employer should view the expenditure on employees for salary or wages as a real cost or loss to the organization; in fact, it may be considered an investment like capital. Furthermore, the salary of an organization will always depend on various factors such as the capacity to pay, the nature of the business, talent available, locality of the unit, and the political and economic scenario of the state in which it is located.

Regards,
N.V. Rao
Naidupeta

Thank you all for the good replies.  My point is, suppose in XYZ place, why does one organization pay 12,000 and another pay 15,000 for the same post? Isn't there any industry average considered? Why is the situation like this?

This is an excellent question, and no doubt our finance friends would have a firm view on why salaries are treated as an expense! I really like the philosophy, and if we treated our employees as valuable assets, their pay and perks as investments, perhaps many managers would work harder at retaining their staff and ensuring full productivity. This could prove a competitive advantage for a company if they got this right!

You must first understand what an asset is. An asset is purchased only once; it's a one-time payment. However, the asset is expected to provide continuous returns. Similarly, when an employee is hired, they are not bought outright; they cannot be equated to inanimate objects. But in exchange for the work they do, the employee must be compensated.

Hence, employers aim to pay employees the least possible salary unless the employee is highly skilled, in which case higher payment is unavoidable. An employee is both an asset and a liability. An asset in the sense that the company receives returns in the form of the employee's work, and a liability in the sense that the employee must be paid regularly.

Does any of the above make sense, or is it just confusing? It is up to you to decide.

Thanks.

Hi everybody, it is a nice topic raised. I haven't gone through the entire thread, but I want to leave my comment on this topic. Considering employees as an asset is not global; it is, in fact, in the initial stage. There are very few companies like Google, Microsoft, and Dr. Reddy's that are complying with this concept. It may take a few decades for the rest of the companies to realize this. However, a company's revenue is also instrumental in the pay structure. To be practical, if you are found to be really worth enough, your company will definitely raise your pay. Otherwise, there are many companies looking to hire you.

Regards, Vishwanath