Monday, June 19, 2006

What Salary should you Offer ... Part 2

Wow, a few very good comments on the first post. Let me first respond to something that I want to make sure was very clear.

The option of applying the 15% raise almost blindly, based on the employee's previous salary, is a typical HR tactic. It is not something I personally believe in, and don't ever blindly advocate. Sometimes it works out that the proper salary to offer someone is a 15% raise, but that is based on merit and coincidence, not some arbitrary program.

I can classify the rest of the suggestions into two categories: a structured, planned incentive program, or paying market value on hire. Both options have their pros and cons, and I just wanted to play devil's advocate a bit here.

First, the structured incentive program. This looks like the best option for both employee and employer. The employee doesn't pre-pay without seeing performance, and the employee has direct compensation incentive for performing. While this is great in theory, there are two major roadblocks I've come across with this one. The first one is bureaucratic, and probably only applies to larger organizations. In a large, publicly traded company, it is not that easy to ever process through an adjustment of more than 10%, or more often than once a year. This is usually a mechanism put in place to maintain some centralized control over expenses, and allows a pre-planned bump in quarterly expenditures for

Wall St . Most raises over a certain % also require either senior management or executive management's approval. The other risk that comes into play when following this course of action is that it could create a jealousy / competition scenario with your other staff, and all of a sudden you're being asked to put in a bonus / incentive program for the whole team. Again, something that probably makes sense for a small team, but far less feasible in a larger organization.

The advice to just pay market value up front has one big risk, identified by Jacob,

Hiring people is a very real risk. Someone can look very good on paper and present himself well and turn out just not to work.

I couldn't have said it better myself. This is the big risk. You are paying for perceived performance, rather than results. If you are hiring a superstar, then excellent; but what if hire a dud? What if he doesn't mesh as well with your team as the interviews led you to believe? These are the types of decisions that in aggregate will make or break your management career. If you have to fight to get the offer you want to offer, and the candidate bombs, everyone will forget the candidate, no one will forget that you fought for an employee who didn't work out.

At the end of the day,

A manager is nothing more than someone empowered to make decisions, and trusted by senior management to usually make the right ones.

As another commenter said, "you can be replaced with a calculator" if you just follow an inane formula and don't use the judgment you are paid to impart.

I'm hoping for even more comments on this post, so fire away .....

Link: Original Post

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Anonymous said...

Large companies also have a major advantage - specialized hiring staff.

Ivan said...

Everyone is different. What motivates one employee may be different than another. I think "compensation" is best viewed in this light. Someone may want more money. Someone else may want more equity. And a third may want more time off, or unusual hours, the ability to work from home, a free bus pass, or the opportunity to change roles/careers. The key is making the employee happy. Happy employees are productive employees.

Jacob said...

Two comments:

First, get the budget before you even start looking for a candidate. You have work that needs to be done and that work has a certain value for your organization. Going this route minimizes your internal budget exposure. Stick to that figure. If a candidate is worth more, he/she is likely a poor fit for the job (likewise less).

Second, you can't be afraid of making mistakes. Fact is that any employee is going to make mistakes (we're human after all). Nobody wants to make them, but they will happen. How you and your organization handle mistakes that are made is very important to understand and the sooner the better. That said, mistakes are a function of risk. If you cannot tolerate risks (you the manager or you the collective company) then recognize that you will also forgo the improved payoff potential that risks represent.

And a corollary: if your personal risk tolerance is different from your company's risk tolerance, then the sooner you recognize that the better. Usually you can adapt (and you should, but that's a whole 'nother topic), but if you find yourself chafing under the difference, it's probably time for a lateral move :).

Scott Sehlhorst said...

Great posts. I'd like to build on something ivan said.

People will make their job-changing decisions based on utility (money + other stuff).

You are forced to operate under corporate constraints on money, and probably some of the 'other stuff'. But you aren't constrained on everything.

When you make the offer, consider saying "the offer is $X, and lets define some other stuff".

For example, most department managers can introduce a notion of limited flex time even in large corporations. If an employee wants to take a Friday off to go fishing, and asks to work an extra 2 hrs each day that week to 'pay for it' - encourage it. There's no cost to you, and a utility gain for the employee.

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