by Chadd Balbi, Undercover Recruiter
Whether you are an HR Director, Hiring Manager or whoever else is responsible for hiring employees, it’s a safe assumption that you want to bring on the best person possible for the job. Whether it’s the next President’s Club Sales Person, Innovative Technology Professional or Lead Customer Service Rep, you want someone who is going to invigorate your staff, and be an A player. But what happens when you aren’t willing to pay for it?
Below are the 5 most important reasons why offering a lower salary is counterproductive and hurtful to your company:
1) The employee will always be looking:
If the market is dictating that sales professionals make $50,000 per year and you start your employees off at $35,000, you can believe that your employees will be ready to leave at the first offer that comes by. In today’s world employees are always willing to entertain new conversations and with reductions in force (layoffs) happening at the drop of the hat, employees are always willing to listen to new opportunities. But, if you compensate your employee well, it will take a lot for them to make a move. By starting them off at a significantly lower salary than other companies in the area, you are only giving them a reason to make a move that much quicker.
2) You are getting the bottom 10%, not the top 10%:
If the average web developer with 5 years experience in your geographic area is making $60,000 per year and your developer happily accepts $35,000 with no questions asked, that should raise some red flags. Why do they not have other competing offers? Unless your position is super niche it’s safe to assume that the candidate you are interviewing is interviewing elsewhere.
If other employers are offering a significantly higher salary than why is that candidate not entertaining those positions? The primary reason: because they are not good enough to get those offers. By getting that candidate who is so easily willing to accept your lower offer, chances are you are also getting the developer who isn’t working with the latest technologies, takes 5 days longer to code and overall isn’t that A player you were originally looking for!
3) You limit your candidate pool:
As much as HR managers want to think they determine salaries based on their company’s history unfortunately, for the most part, they are wrong – salaries are determined by the market. If the 15 companies in your geographic territory are paying customer service reps $35-40,000 per year than you can’t sit there at $25K and be satisfied because “that’s how we’ve always done it”. If car dealership A is offering the next car I purchase $20K higher than the 6 other dealerships in the area, it’s safe to assume which dealership I won’t be buying from. In turn, when you try to go against your market’s grain you are cutting your candidate pool in half, if not more, and picking from a lot less talented candidates!
4) You’re showing your employees that you don’t really value them:
This one can be tricky. As much as you want to offer candidates the highest salary possible, sometimes your budget just won’t allow it. There is no need to break the bank, if by doing so there is no bank to be had 3 months later. So this point doesn’t typically apply to those situations. However for those companies who can afford higher salaries, but don’t, you are telling your employee that you truly don’t value them as much. A long time ago just being employed was enough. But in today’s market an employee wants to know they are cared about, that you have their best interest in mind. By offering a lower marketed salary, when you know you can offer more, you are fracturing that relationship right off the bat.
5) Setting an employee up for failure:
By offering a lower marketable salary you are opening up the doors for negotiation. The candidate wants to be compensated fairly and if they have other offers on the table, they know what fair is. Now assume that you do offer the candidate the salary that is ultimately determined as fair market (for example $10K higher than the original offer). By offering the candidate a higher salary than you deem normal, your natural response is to expect more out of the candidate. However that salary you offered is the normal market value so this employee should not be expected to perform any differently than anyone else in their role. Expectations have now been unfairly put on this person when in reality they were just trying to get what they are worth.
If you talk to most recruiters they will tell you that salary is not everything. And they are right. There are many things to consider when accepting an offer, such as commute, job security, career mobility/ advancement and countless others. However, salary usually plays the biggest motivating factor if not the only factor in some occasions.
If you expect to walk home with a 2011 Ferrari but are only willing to pay for the 1987 Honda Accord, you are in for a rude awaking.