Retention and compensation are important for employee retention. Today’s professionals want a work/life blend, flexible hours, and a better company culture fit than past generations, but cash is still very motivating when attracting and retaining the best talent. If you want to keep employee satisfaction high, avoid offering below-market rates and you’ll have more luck filling open positions with top talent.
Why Businesses Offer Below-Market Compensation
A quality employee is worth his or her weight in gold. Finding someone who has the skills, education and experience for the position, who also fits the company culture and values is worth investing in to keep him or her on the team. There are two primary reasons, however, that businesses may continue to offer below-market compensation rates, despite an employee’s worth:
- Budget Concerns—Budget concerns can undermine your efforts to find quality talent, especially if competitors are actively recruiting and paying more for a given position. If you have budgeted $60,000 for a management position and all your competitors are offering $75,000, you’re going to have trouble filling that position. You could spend valuable time during screening and interviews, only to get turned down by a candidate who gets a better offer elsewhere. Even if you do fill your position, you may have to hire a less talented or less experienced person, which may result in higher turnover and lower productivity. Always consider whether the money you save now is truly worth it in the long term.
- Internal Equity—Internal equity is the idea that employees at the same level within the business should receive similar pay. This becomes a problem when current employees are receiving below-market compensation and a business is unwilling to bring in a new employee at current market rates. If you increase the pay for all of your employees to the current market rate for their roles, you won’t have internal equity struggles. Compensation should be determined by the position and skill required to perform the job, not by job title.
How to Determine Compensation Rates
Finding the right person for the job without sacrificing your allocated budget requires careful planning:
- Consider the critical skills. What results do you need your new employee to achieve? What skills and experience is required to achieve those goals? Are there any trainable skills,which may allow you to hire a person with less experience at a lower pay rate?
- Determine current market rates. Education yourself on the going rate for an employee with the skills you need. Savvy RPO firms like Hire Velocity use predictive analytics to determine average compensation for a position in a particular region. These analytics reports help clients understand current compensation rates and how they measure up. Compensation rates on sites like Indeed.com are helpful as well, but they are self-reported and may not be as accurate as an RPO firm’s analytics reports.
- Paying quality employees what they are worth. Hire to fit the requirements of the position rather than to fit the budget and you will be more successful attracting and retaining the kind of talent you want. If you can’t pay the current market rate, be prepared to hire someone who may not have all the qualifications or experience you are looking for.
Top talent is in high demand. In order to win the war for talent, you have to be willing and able to adjust your budget in order to accommodate a fair market compensation rate. Underpaying usually results in under-performance. On the flip side, however, great people will always be worth what you pay them.
