Determining Salary for a New Hire? Think Like a Compensation Pro

10/21/2013

woman with stack moneySalary negotiations with top performers are a pivotal time in the hiring process. As an employer, it’s easy to forget that the candidate is not yet one of your employees. You can create or destroy trust, and set the tone for your entire employment relationship by how skillfully you negotiate salary. Sadly, salary negotiations are also where hiring managers risk snatching defeat from the jaws of victory. Job seekers now have access to credible salary information, so you need to assume they know the market for their skills as well, or better than the hiring manager.

Early in a new search, and again at the offer stage, we talk with hiring mangers about what kind of salary they plan to offer the candidate. In those conversations, it appears that many hiring managers struggle to find a framework to talk strategically about compensation. Fortunately, most experts agree on what factors you should consider in discussing compensation. I’ll share some of those factors below, but remember that salary is not everything–it’s also important to understand how salaries fit into your total reward strategy. See, “Are You Ready to Explain Your Compensation Strategy (Coherently?)” 

Before we start with the expert recommendations, let’s first dispense with two common, but really counterproductive salary negotiation tactics:

The weakest logic I hear from hiring managers is when, in generating a job offer, they say, “I just looked at the candidate’s previous compensation and added 10%.” This flawed approach demonstrates that the manager has no compensation strategy of their own. They are simply hoping the candidate’s last company had a smart compensation strategy; otherwise they compound the very mistake that caused that employee to consider leaving.

Another salary negotiation tactic that’s certain to backfire is to low-ball a job offer to a top performer and expect that they are either: a) poorly informed enough to accept it; or b) willing to keep negotiating after a bad-faith move from the hiring manager. Taking this approach overlooks the big picture of compensation–you need to pay fairly because other employers are hotly competing for the very same people. Only desperate people accept a low-ball job offer. Top performers will simply go elsewhere–to find an employer that understands their market value and does not play games with their pay.

You simply can’t wing it in these conversations – money is too much of a hot-button issue. Follow Dan Pink’s advice from his book Drive:

“The best use of money is to take the issue of money off the table . . . Effective organizations compensate people in amounts and in ways that allow individuals to mostly forget about compensation and instead focus on the work itself.”

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Making a Job Offer? Don’t Make This Mistake

04/13/2012

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.


Dealing with a Work Avalanche

12/13/2011

Are you feeling overworked and understaffed right now? You’re not alone. Under-staffing is common during this stage of the business cycle. Some people think it is a long-term trend–calling it the “Job Squeeze.” Perhaps it is. I do know that work pressure has been building quietly for years in many organizations–like snow falling on mountaintops. And when something small triggers it, you are suddenly faced with a “work avalanche.”

Here is how work avalanches are created: When confidence is low, your organization responds to good news differently. You try to grow without corresponding staff growth. Headcount starts to trail revenue growth, and then falls further and further behind. Good news for the organization actually becomes bad news for the team. They were overworked before, and “good news” just makes it worse. Every new contract, new client, and new project just makes it harder to keep up.

How do you know you waited too long to add staff? Your best people are getting sick more often. You are seeing more preventable mistakes being made. Small issues cause tempers to flare, people are less tolerant of each other. They take things personally. Work just seems less fun. And eventually your best people burn out, give up, or quit–triggering an avalanche of work on the remaining team members.

Here’s the thing. Often, when you force your team to “do more with less” they are not doing more. They are making trades. They are trading long-term thinking for short term thinking. They trade planning time for reaction time. They stop making deposits into the relationship bank, and start making withdrawals–using up the goodwill they’ve built over many years. And the cost of that short term focus builds up… like snow building up on a mountain. Eventually the bill comes due in a work avalanche.

Here is what to do about it: When your hiring fails to keep pace with your growth, you can no longer afford to drag out the hiring process. But when confidence is low, that is exactly what happens. “Let’s try it first on our own, before we put it out to a search firm.”  Three months later the team is exhausted, frustrated, and at wit’s end. In your cautious desire to save money, you not only lost time and focus, you created even more risk–from people quitting.

Newsflash: When you are chronically understaffed, nobody on your team has the time or energy to do hiring on their own. When you are running from a work avalanche, you don’t want to make your backpack heavier.

If your business strategy requires you to keep staffing levels lean, you must be prepared to hire very quickly when you get good news. Either beef up your internal recruiting capabilities, have qualified contract workers on speed dial, or be ready to call in search firms the instant you know you need help.

Because standing still is not a good strategy when an avalanche  is bearing down on you.


What Neuroscience Tells us About Employee Retention

04/04/2011

Some people dismiss employee engagement research as “too fuzzy.”   Not me.   We have successfully integrated key principles of employee engagement research into our recruiting process.   I know it works.    And naturally, as a headhunter, I’m also fascinated with how people make decisions, so I devour research on the neuroscience of decision-making.

So when Scott Campbell used neuroscience research to validate the key findings from one of my favorite books on employee engagement, it was chocolate and peanut butter for me.  Do yourself a favor and read Scott’s post on Leader’s Beacon.  Here is a quick snapshot of his argument:

“Different (employee engagement) research organizations classify their findings in different ways. David Sirota’s formulation is a simple and useful model. His research suggests that there are three factors that, together, create strong engagement: the employee’s sense of (1) fair treatment, (2) achievement, and (3) camaraderie.[i]

Neuroscience has been making remarkable progress in helping us understand the workings of our mind and illuminating central truths about human nature. In some cases, the findings confirm the validity of existing leadership and organizational practices; in other cases it is turning them upside down. In this case, it confirms that Sirota’s three factors are real, universal, and fundamental in fostering a strong level of engagement in employees.”

David Sirota’s book,  “The Enthusiastic Employee”  – is probably the most important book on HR that nobody has ever read.   That’s unfortunate because the authors really did their homework.  Over a decade, Sirota Consulting surveyed 2.5 million employees who worked for 237 organizations in 89 different countries.  If you want to know why your new hires just aren’t that into you anymore, read the book (or at least read my blog post about it).

And now, coming from a completely different perspective, neuroscience is backing up Sirota’s findings.   Delicious.


Resignations – the “December Surprise”

12/14/2010

My phone always rings in mid-December. Is it people wishing me a happy holiday? No, not really. It’s usually managers who received a “December Surprise” – a resignation from a key player on their team.   (Thankfully no calls came this year to tell me somebody that we placed has quit!)

There are many reasons people resign in mid-December, and many reasons for turnover in general. But as a hiring manager you can turn the December surprise to your advantage … if you move quickly.

Because early January is the best possible time to be recruiting (here’s why). So, if you get into action right now, in December, you can probably upgrade to an even better employee, and be back on track in no time.

On the other hand, if you fritter away the rest of December, and wait until January to start thinking about recruiting, you’ll be too late. (Here’s why).


Did you Budget for Turnover?

11/09/2010

As you prepare your budget for next year, you probably accounted for the cost of your new hires, but how much did you budget for replacing your current employees who quit?  Turnover is expensive.  When your current employees leave (and many of them will), have you budgeted for the full cost of replacing them?

Before you finalize next year’s budget, be sure you think through the impact of employee turnover. Whatever level of employee turnover you have been experiencing in the past 18 months, plan for it to double as the economy improves.    Yes double.

If you must replace 10% of your team, will you still be able to achieve your performance goals? What will it cost you when a key player leaves, and it takes you 60 or 90 days to replace them?  What will you lose in productivity while the new hire comes up to speed? What will it cost to attract someone new to the position (both in salary and recruiting costs?)

With all the turnover we are seeing in the DC job market, you should seriously consider what might happen if you lose 20 or 25% of your team … then what happens to your budget?

If you don’t plan for turnover now, you will almost certainly find yourself behind on your performance goals, short-staffed and over budget at this time next year.


Affordable Job Perks

08/23/2010

As the economy recovers and top performers start heading for the door, companies are looking for ways other than salary increases to compensate their employees.

In an article for the Wall Street Journal’s Market Watch, Ruth Mantell reports that companies project merit increases of 2.7 for 2011, compared with 2.3 for 2010 and 1.6 in 2009.  For employees at companies that are strapped for funds, Mantell writes, variations on the following rewards are a good way to hold on to top talent during  tough economic times:

  • Flexible schedules.  Flextime – allowing individuals to alter their working hours – or compressed work weeks are the most well known types of flexible schedules, but flexible schedules can be highly individualized to meet the work/life balance needs of productive employees.
  • New job skills and responsibilities — Employers can teach workers new skills to reward them. Employees’ skill sets get increased with the hope that at some time, if the opportunity presents itself, they will be qualified for higher paying jobs.  Alternately, employers can reward younger workers with “stretch” assignments.  Mentoring programs also can help younger workers grow professionally.
  • Career development and tuition reimbursement – Employers can pay for courses, conferences and membership to professional groups.  Employees can attend classes to help them develop new skills or work toward an advanced degree. Companies gain better-trained employees, while workers widen their skills.
  • Small gestures – Small gestures can go a long way.  Reward top performers with a dinner.  Offer bigger employee discounts. Hand write a note to an employee to thank him/her for a job extra well done. “It isn’t cash,” says Bob Cartwright, founder of Intelligent Compensation, a consulting firm near Austin, Texas, “but these are the kinds of small things that help create a better environment. People are going to think twice about walking across the street to make another 25 cents an hour when they know they are working in a great environment.”

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