Determining Salary: Tips for Fair Value Compensation
Salary
Salary represents something more visceral than simply the paycheck. To an employee it represents their imagined worth to the company. It’s a reflection of their perceived importance and seniority.
When calculating the salary you want to offer a potential candidate there are some things you can keep in mind.
Current Salary Comparison
Taking the current salary of the candidate and offering either a set amount (10 K) or percent (20%), is useful when trying to seduce a superstar away from their current gig. One potential hazard is that they could be exaggerating their current salary to get a sweeter deal. To quote Ronal Reagan: “Trust, but verify.” When speaking to their current or most recent employer as a referral, include verifying the salary they cited among the things you discuss with their old boss. If there’s a discrepancy- don’t take it personally (can’t blame a guy or gal for trying, right?), but set the offer compared to the true salary, not the quoted one.
Industry Standard
There are some extremely useful sites out there. www.payscale.com is one of my favorite resources for this. You put in a bunch of information including role, region, years of experience, education, qualifications, and what the job entails, and you get like for like comparison to other professionals.
Do your research. The offer should be around the 50th percentile of the scale. If the person’s expectations falls significantly above or below the average, you have to wonder if their duties were truly related to the job you’re considering them for.
If it’s a step up- there’s nothing to say they are not capable for the step up. Promotion by job movement is common, but you have to keep in mind they may be on a steeper learning curve.
It it’s a step down- you pose the risk that they may not stick around and will they take the next job that comes around which is more with on their career track. Of course- some people are willing to trade down a position and be demoted for more free time, or the right work environment, so ask the person about it in a non-confrontational way.
Ask
Ask for the salary of what the person wants, and then meet it. If they give a ballpark or range (which is what I usually do), offer the average of the low and high.
Performance Based Incentives
Bonuses based on performance go beyond commission for sales and revenues earned. More progressive models of compensation incorporate profit sharing and gain sharing (gain sharing refers to using company or business unit performance to determine bonuses beyond simple profit metrics. For example, it can be attached to increase in profit, cost management, QA etc…).
The interesting thing about performance based compensation is that it can be tied to business unit performance, or directly to the employee’s performance, or a mixture of the two. The important thing is to attach the metrics to things they directly have control over. In the case of where it’s based on a Likert scale style performance review, that the reviewer is going to be honest and fair in the numbers they’re selecting, and are not bumping up because they’re fond of the employee, or down because they’re not fond of them employee, and the numbers reflect personal feelings instead of performance of the employee.
You get what you pay for. If you compensate below what people are used to or feel they’re worth you risk two things: 1) Losing your best people to new jobs, or 2) having them lose their fire and motivation.
In summary, while it’s in the interest of business unit profitability to keep things lean, it’s antithetical to productivity of the employee. The highest quality candidates are always going to be more expensive, but worth every cent.
Thank-to-Editor: John Murray.
Salary represents something more visceral than simply the paycheck. To an employee it represents their imagined worth to the company. It’s a reflection of their perceived importance and seniority.
When calculating the salary you want to offer a potential candidate there are some things you can keep in mind.
Current Salary Comparison
Taking the current salary of the candidate and offering either a set amount (10 K) or percent (20%), is useful when trying to seduce a superstar away from their current gig. One potential hazard is that they could be exaggerating their current salary to get a sweeter deal. To quote Ronal Reagan: “Trust, but verify.” When speaking to their current or most recent employer as a referral, include verifying the salary they cited among the things you discuss with their old boss. If there’s a discrepancy- don’t take it personally (can’t blame a guy or gal for trying, right?), but set the offer compared to the true salary, not the quoted one.
Industry Standard
There are some extremely useful sites out there. www.payscale.com is one of my favorite resources for this. You put in a bunch of information including role, region, years of experience, education, qualifications, and what the job entails, and you get like for like comparison to other professionals.
Do your research. The offer should be around the 50th percentile of the scale. If the person’s expectations falls significantly above or below the average, you have to wonder if their duties were truly related to the job you’re considering them for.
If it’s a step up- there’s nothing to say they are not capable for the step up. Promotion by job movement is common, but you have to keep in mind they may be on a steeper learning curve.
It it’s a step down- you pose the risk that they may not stick around and will they take the next job that comes around which is more with on their career track. Of course- some people are willing to trade down a position and be demoted for more free time, or the right work environment, so ask the person about it in a non-confrontational way.
Ask
Ask for the salary of what the person wants, and then meet it. If they give a ballpark or range (which is what I usually do), offer the average of the low and high.
Performance Based Incentives
Bonuses based on performance go beyond commission for sales and revenues earned. More progressive models of compensation incorporate profit sharing and gain sharing (gain sharing refers to using company or business unit performance to determine bonuses beyond simple profit metrics. For example, it can be attached to increase in profit, cost management, QA etc…).
The interesting thing about performance based compensation is that it can be tied to business unit performance, or directly to the employee’s performance, or a mixture of the two. The important thing is to attach the metrics to things they directly have control over. In the case of where it’s based on a Likert scale style performance review, that the reviewer is going to be honest and fair in the numbers they’re selecting, and are not bumping up because they’re fond of the employee, or down because they’re not fond of them employee, and the numbers reflect personal feelings instead of performance of the employee.
You get what you pay for. If you compensate below what people are used to or feel they’re worth you risk two things: 1) Losing your best people to new jobs, or 2) having them lose their fire and motivation.
In summary, while it’s in the interest of business unit profitability to keep things lean, it’s antithetical to productivity of the employee. The highest quality candidates are always going to be more expensive, but worth every cent.
Thank-to-Editor: John Murray.
posted by Mike at 9/22/2009 07:09:00 p.m.
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