Comment by solatic

By definition, paying employees well means paying them above-market, not market rate. If you pay people market-rate, nobody writes home about the compensation. Market-rate is also not "underpaying" i.e. below-market.

Paying above-market rates is walking a tightrope. On the one hand, experienced employees who are well-versed in your systems and your organization are indeed worth more than market-rate (i.e. someone new), and compensating them as such will retain them. On the other hand, it also retains poor performers, who you want to steer to finding roles elsewhere. Being ruthless about firing fast is one option, but it's a deal with the devil - it erodes psychological safety among people who stay unless the firing is unanimously desired and there is a consensus among everyone who remains that it was necessary. So if you handle the firing wrong, you affect performance and social cohesion everywhere. If you pay market-rate, it's easier to just make someone miserable until they self-select out and find work elsewhere.

Unfortunately (or fortunately?), all successful startups pay above-market because equity compensation in the right company can be a life-changing amount of money. So most successful startups seem to successfully walk that tightrope.