Employers Beware; Great Candidates Know Their Value

As the job market continues to improve in the Washington area, I’m seeing a trend. Great candidates know what they are worth on the job market, and they are not settling for less.

It’s not just that top people are receiving multiple job offers … although we are seeing plenty of that. It’s not just an increasing self confidence level that makes candidates more willing to ask for what they want …  although we are seeing plenty of that also.

No, the really interesting development is how well-informed candidates are. They really know, within a few thousand dollars, exactly what they are worth. That’s a long term shift that employers ignore at their peril. You simply must assume that both parties to the job offer have very similar information now–they know what you know.

As an employer, you simply cannot low-ball an offer by a few thousand and hope the candidate will fold–when you do that now, you only snatch defeat from the jaws of victory and end up with nothing.

Making a Job Offer? Don’t Make This Mistake

Client emails me and says “Hey, I want to offer the job to Kathy, but I only have her salary on her past two jobs, can you get her salary from the company before that? That would be helpful to arrive at a fair compensation package for both her and us.”

Sounds pretty reasonable, right?

Except it’s not the right way to set salary.

If my client wants to retain Kathy, her past salary is irrelevant – the only factor that matters is market rate. And in this search, all the other qualified candidates were within 5% of each other in total compensation–that’s market rate. (Here is more information about how to calculate it).

If you want to attract and retain good people, take your nose out of the salary surveys, ignore individual salary histories, don’t go into an excel-spreadsheet-trance with your budget, and pay at least fair market rate. Because what Kathy earned in 2005 will not help you retain her when your competitors come calling.

What’s the Salary Range for that Position?

When we’re recruiting someone, we’re often asked the salary range for the position, but we never disclose it.  Candidates think that knowing the salary range will help them decide if an opportunity is worth pursuing.  In fact the opposite is true.   Whether you are above, below or in the middle of the salary range, talking about it just gets in the way.

Talking about salary up front is like specifying the requirements for your engagement ring on a first date – it gets in the way of the real priority – deciding if you should be in a relationship.

Our clients are small to midsize organizations, and our searches are often for one-of-a-kind, mission-critical positions.   So in that world, salary ranges are rarely set in stone, they are simply a budget guideline, a best guess.  Even formal salary surveys are only an approximation – you never really know the true market rate until you have interviewed at least 3 or 4 people who meet all the qualifications for the job.    

As a search firm, finding perfect candidates is our priority, and perfect candidates are not always within the target salary range.  To rule out great people before talking with them – based on salary alone – would be a disservice to our clients.  We’ve often seen clients pay above their target salary range to attract someone with unique skills.  In the long run, hiring and retaining high performers is the only thing that matters.  And talking about salary too early in the hiring process prizes budget conformity over job performance.  (Full disclosure, we operate on a pre-arranged flat fee basis, so this is not a self-serving argument to raise our search fees – we’re paid the same regardless of final salary).

OK, so we’ve discussed the problem with people who are ABOVE  the stated salary range, but what about people who have a salary BELOW the target range.  That’s just as big a problem.

What happens when I tell a relatively junior candidate who is currently earning $90k that this position has a target salary range of $100k – $125k?     They proceed to ignore all the other variables that go into deciding if this is the right job, they ignore all the factors the employer uses to set a salary and they lock in on the size of the engagment ring salary range, like it’s the only thing that matters.  Big mistake.  The candidate thinks “If they really like me, they will pay me at the top of the range …  at least $120k.”   Without ever discussing whether $120k is realistic, given their actual skills, they begin to fantasize about how to spend the extra thirty grand.   

But salaries are not determined by the target range, they are determined by market rate – what other people with similar skills are earning.   The candidate never knows who they are competing with for the job.  Our $90k junior candidate does not know about:

• The industry guru who currently earns $130k but would happily accept $125K for a better commute. 
• The strong senior person who could hit the ground running (with no training and little supervision) and would happily accept the job at $115k
• The even more junior person who is earning $85k but is hungry to prove themselves and would be thrilled with a salary of $90k.     

If I share a salary range up front, and then later offer my $90k candidate the job – at a very reasonable $105K, with tons of room for future salary growth – they feel like they just took a $15k pay CUT (from their fantasy $120k) instead of receiving a $15K pay RAISE from their actual $90k salary.  Instead of being happy, they are disappointed, and the employment relationship is poisoned before it even started.

Yeah, you can ask all you want, but we’re not sharing that salary range with anyone.

Internal Equity vs. Market Rate

Does this sound familiar?   ”I can’t pay our new manager $110k because the other manager in that department only earns $95k.”    Hiring managers often hamstring themselves over this kind of “internal equity” consideration.  I’ve written previously about the dangers of hiring to fit the budget, instead of hiring someone with the skills to actually do the job.  This “internal equity” consideration is exactly the same kind of problem.

To hire great people, only “market rate” matters.  Market rate is what other employers consider to be a fair salary for the same candidate.  Your budget and “internal equity” issues are irrelevant.  In hiring you are competing with other employers to hire the most highly qualified person, and if you are weighed down with any considerations unrelated to “market rate” you are giving an artificial and unfair advantage to every other employer you are competing with.

Admittedly, “internal equity” only shows up as an issue when you are hiring, but it is really not a hiring issue.  It is a compensation issue. 

Internal equity problems do not occur in organizations that pay market rate.  They only occur when someone has been underpaid for several years relative to their market value.  And you cannot solve it by trying to hire new people at below-market salaries.  To let an unresolved compensation issue affect your hiring will only compound the problem, constrain your hiring, and kick the can down the street to show up every time you hire in the future.   (And you will have to hire a lot because paying below market causes turnover).

OK, so internal equity within a department is one thing, but sometimes I hear organizations debate equity between different departments.  That just defies logic.  You simply cannot try to pay all of your executives the same pay rates.

It isn’t “more fair” to pay your Director of Sales the same pay as your Director of IT–it’s idiotic.  

Internal equity within a department (or skill set) is fine, but there is no such thing as internal equity between different skills.

In hiring, market rate is the only true benchmark (you can read more about it here).   The minute you forget that, you start overpaying your less valuable people, and your more valuable people start quitting to go where their skills are properly valued.

Salary Surveys Help You Hire Average People

Salary surveys are often misused in hiring.    Like when you budget for a new position using the 50th percentile average pay for a position, and then go looking for a superstar to fill the job.  If you think you can hire superstars for the 50th percentile average salary … well, think again.

While salary surveys can give you the average pay range for common job titles, they are quickly outdated in a rapidly emerging or rapidly changing job market.  And they are never a good guide for what you need to pay to hire superstars.

Paying a salary premium to land a top performer can be a great investment, but before you commit, you should understand what the “market rate” for top performers really is.   So get your nose out of the survey data and read how to calculate ”market rate” pay for superstars.