Tuesday, May 26, 2009

Constructing the Salary Offer

I realize there is not a lot of hiring going on right now, and candidates are likely settling for less than than they would. But, I imagine job offers will always be lower than many candidates hoped for. Seasoned executive recruiter Mark Warren understands this well. In a blog post from earlier this month, he helps recruiters prepare candidates to be realistic about an employer's offer.

Mark explains that candidate's need to know the thought process employers go through when making on an offer. He explains the employer's evaluation is processed using the following criteria in order of importance.
  • (40%) Internal restrictions such as budget requirements, department parity issues, established pay bands
  • (30%) The market value of the candidate as perceived by the employer, not the candidate
  • (20%) The candidate's current compensation and compensation history
  • (10%) The candidate's compensation needs
Nice! I think he's pretty spot on, but I'm not sure how many employers know they are going through this process. I don't think there is much salary planning at all in many start ups. I think this break down helps employers understand what they are doing. Perhaps this process and percentages can be used proactively to establish salary ranges and job offers? To plan (gasp).

Certainly, this reminds me to add salary strategy to start up's list of areas where HR can help. It's a lot harder to fix these issues than it is to do some prior planning. Do you understand each position, the market range for that position in your area (industry and geography) - just roughly, that is (there is a lot of subjectivity here). More importantly, do you know if you pay above or below market? Is this part of your strategy? Do salary increases fit into the plan? Does salary mix with equity or other incentives offered?

48 comments:

  1. We have a pretty well developed approach to this with salary banding, annual external and internal benchmarking and a more structured approach to rises.

    This still doesn't get around the question of how you react when one of your top talent is offered by a competitor and the offer is outside of your salary band, which you know is competitive in the market place.

    Do you stand firm, or do you accept that structures are there to be broken?

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  2. Interesting HRD ... a nice real world issue. I would say rules are made to be broken :-). You should know very clearly exactly why they warrant the exception, why they are different, and how they contribute more - you should know this so well that you could explain to other employees.

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