Tag: compensation

Why a Rolls Royce Costs More than a VW

A Rolls Royce costs more than a VW, especially if it’s got a flat. There’s a good reason for that. The entire driving experience is poles apart. Similarly, if you’re considering candidates, well, the range of talent will be apparent when you evaluate resumes and conduct interviews. Too often, it all comes down to compensation.

Every firm wants to spend as little as possible on their employees. They hope they can identify a diamond in the rough, preferably without the assistance of a recruiter, and pay pittance. Sometimes that works. Most of the time, it doesn’t. Why? Because a Rolls Royce costs more than a VW.

When new hires are paid poorly a few things can happen, some rather quickly. One, they take calls/read messages from recruiters and scour the Internet for opportunities. Two, they resent their low compensation and, thus, are less inclined to work hard. Three, they don’t want to listen. Four, they spend time complaining about their compensation, which negatively impacts their productivity. Five, they have a lousy influence on those around them.

So, while the hiring manager may feel smug for saving money, they might not have acted in their own best interest. Hiring managers need to be honest about why they would want to hire the equivalent of a VW. Do they think that choosing someone who isn’t high caliber, and a bargain, will make them look smarter or more capable? Unwise. Could they really depend upon that individual? Unlikely. Will that person genuinely be an effective contributor? Probably not. Sometimes, if a person isn’t asking for a lot of money, it’s because a) they’ve not been paid much historically and b) they’re not great contributors. Why would a hiring manager feel it’s OK to add someone to the team who isn’t the equivalent of a Rolls Royce? Or at least, a Porsche?

When conducting a search, first the hiring manager should examine what other members of the team are earning. Second, some will contact colleagues at other shops to ask what they’re paying their staff. By looking at various candidates’ resumes and their compensation expectations, a hiring manager can get a sense of what the market is at that precise moment. Bear in mind that some candidates may ask for more than they’re willing to accept. I’m not suggesting that one not respect what they’re requesting. Rather, I believe that it can be reasonable to offer a bit less.  The candidate has the option to decline. Both the hiring firm and the candidate should be willing to negotiate a bit, ideally in a respectful fashion.

But if the hiring manager determines that a particular candidate stands apart, unquestionably head and shoulders over the rest, it can be worth it to pay what’s sought. However, there’s a risk. Sometimes, if what’s being asked is significantly higher than what others at the firm are earning, the newly hired employee may not stick around. For example, someone was hired who earned a lot more than others at a firm. The firm paid up initially and the new hire lasted about 18 months. Here’s an explanation. On the rare occasion that an expensive candidate is hired, he’s usually broken the compensation ceiling when first hired. This usually means, even if he’s amazing, that he never sees much more in compensation. Plus, if you’re the most expensive hire, you’re probably not at the right firm. The reason: you may well be of a caliber that’s incompatible with the team. 

To determine if the candidate really is going to be pleased with what’s offered, ideally, multiple conversations are held and candor is encouraged. That doesn’t mean anyone will be candid. Still, it’s worth the effort.

If the hiring manager has identified their top pick, well, that candidate, if they’re really worth hiring, needs to be compensated appropriately. Making them a lousy offer will either result in them declining the job and/or feeling like their time has been wasted. On one occasion, a hiring firm presented a ridiculously low offer. The candidate was almost embarrassed for the firm. She declined the offer and felt as though the experience of interviewing had been a nuisance. In short, the candidate felt disrespected. Firms should pay up if they want to attract talent. What you’d pay for a Rolls Royce is very different from what you’d offer for a VW.

The Impact of the Law Banning Salary History Discussion

On October 31, 2017, NYC banned employers from asking candidates their compensation history. Their goal was to address a discriminatory practice.

Recently, I spoke with an industry source who had heard that employers were telling candidates, “Here’s your offer, take it or leave.” He shared that his understanding was the discussion around compensation had been truncated.

When I shared with this source a few anecdotes I had heard, he was surprised.

I’m now aware of four offers made that wouldn’t ever have been presented before the law. Two were for offers that included a 50% increase in base salary while two others were 50% higher in total compensation.

My guess is that neither the hiring managers, nor the recruiter, nor Human Resources had a sense of what the candidates were earning. Otherwise, I think it’s unlikely they would have made offers with such radical increases. What you may find especially unexpected is that not all of these offers were accepted. And three were made to male candidates. This is noteworthy as the law was specifically geared to assisting women and minorities.

In one case, where the offer was declined, the candidate accepted a counter that didn’t match the significant offer. Compensation, he explained to his boss, was the only reason he was interviewing. And when the candidate said that to his boss, she didn’t know his base salary and was surprised to learn it was so low. Yes, the boss didn’t know her subordinate’s base salary.

What are hiring managers to do? Certainly they don’t want to break the law and ask what a candidate is earning. Nor do they want to offer a 50% increase in salary or total compensation. One approach some will surely take is to do due diligence. Find out what is known historically about how people are paid. For example, at certain firms, titles determine what compensation range someone might be eligible for.

But far more important, evaluate the compensation of your existing team and determine what you’re comfortable paying for the role. This approach can mean that you may not consider some talented candidates. Yet, it could help to keep the compensation packages of the entire team in the same range.

Sometimes, when interviewing, hiring managers quickly learn that their existing team is paid below market. This may prompt them to adjust the compensation of current employees. Others prefer to just keep searching for a candidate who, similarly, is paid below market.

Compensation is not the only reason anyone should move. But it’s almost always one of the reasons. Hiring managers who offer reasonable compensation packages and make an effort to meet the requests of a candidate, while still be respectful of what existing team members earn, will likely be successful when it comes to recruiting.

Above all, if a candidate feels good about their compensation, the firm that hires them will likely benefit. First, the new hire is more inclined to stay longer. Second, they’re less likely to waste lots of time trying to determine if they’re reasonably paid. Third, if they feel good about their compensation, they’ll probably want to make a better contribution and do a better job. That’s certainly good for the hiring manager.

How Candidates Should Navigate the Law Banning a Discussion of Compensation History

Just as hiring firms are adjusting to how to navigate discussing compensation with candidates when, by law, they need to avoid asking compensation history, candidates are fumbling with what to, and not to, say.

Many candidates find themselves telling recruiters, HR and hiring managers what they’re presently earning. Or what they’ve been earning. This isn’t the best approach for a candidate. Not at all.

Instead, candidates should determine what is the compensation they want vs. the compensation they’d take. And those should be two different numbers. For example, if someone’s presently earning $200,000 total and they’d like $275,000, that can be the number they want, while $230,000 might be the number they’d take.

Once a candidate has established those numbers, they should practice saying, “I’m looking for a total package of $275,000 with a base of $200,000.” And practice is best done in multiple settings. While driving the car, hitting a tennis ball, taking a walk, shaving, emptying the dishwasher, etc. There should be enough practice so that the candidate is relaxed and prepared. Otherwise, they may find themselves with their arms across their chest, looking down at their shoes and whispering. Not a good approach. So practice. Practice so much that responding to the question is not something you dread.

Typically, what’s offered isn’t what’s requested. But how one states their sought compensation can impact what’s offered.