Choose to pay the employees a little too much or a little too less?

We tend to think that the fair value of a work is the price of it, but it's hard to appreciate. As a web startup, what do you think is the best strategy, keep the pay a little too less to keep the company expenses as low as possible or to raise the pay a little too much to keep the guys motivated? In other words, what errors is less harmful for a company to pay too much its employees or too little?

So if you apply your idea throughout your company, will you choose to under pay or over pay your taxes? Will you pay too much or too little for office space?

Are you seriously saying you will interview potential employees, come up with a salary and then make it lower or higher? Here's what will happen:

1. If the pay is lower than normal- you will miss out on hiring the people you want and some of the people you do get will quit. Those who do work for you will have poor morale and it will be reflected in your product.
2. If the pay is too high- you will burn through cash that would have been better spent elsewhere. You will attract numerous extra qualified and unqualified potential employees and have to deal with their applications. (Yet another cost.) The extra pay may make a difference in morale for a few months, but it will be forgotten quite quickly. Since pay in the US is based, for a large part, on what you made at your last job (not what you are worth) your employees will eventually move on.

Rather than pay too little or too much, pay your employees fairly and offer benefits they probably can't get elsewhere. (Free pop, free lunches, flex time, gym membership, ....)

Neither - pay just enough that your people don't have to worry about money and can focus on doing awesome work.

Remember that money is just part of the compensation package and often less important than you might think. In fact many would argue that money is a hygienic motivator that is not particularly effective if you want to attract the best people and get exceptional performance out of them.

Think about what would attract someone to want to work for a startup rather than a big, secure company offering the same salary and benefits? Clearly there is less risk with a big company, but less opportunity for growth as well. Often people are willing to accept the risk of a small company in hopes of a bigger payoff. That is why things like stock options can be extremely attractive.

Then there are factors like free food, company parties and outings etc. All the things that build teamwork and a sense of family that a large, impersonal company lacks.

Have you done a compensation survey? An easy way to get a handle on pay is glass door.com .
As another writer said, what a person is paid is only one part of the equation. What are the working conditions (the environment), the culture (do people get along, are they motivated, do they hang out after hours, etc.)

Having said that, what you compensate people to do will drive results, e. g. bonuses for beating specific deadlines, rewards (not money) and recognition for team and individual achievements and successes that drive the business.