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  • Brian Kinzie, MBA, SHRM-CP

Compensation of New Hires – Uh, How Much Should We Be Paying?

In our last exciting feature, we discussed the internal equity trap, and the importance of not letting that issue prevent you from making the right hire. But the first step is really figuring out what skills you should be hiring and what you should be paying in the first place. Here is how this often plays out, and ends poorly.

Susan is excited. She just hired Bob to be an office assistant at her company. The business has really been growing, and there just seemed to be a lot of stuff falling through the cracks around the place because everyone else was so busy. Bob is a friend of the sister of one of her best employees, so she knows he will be awesome. Susan decided to offer Bob the same $10 an hour that she always started every new person at, because that just seemed fair to her, and he had accepted it. Maybe he had sounded disappointed with this? Nah, he is probably just a bit shy, her company is an awesome place to work!

Six months later, Susan is less excited. Bob, frankly, has become a total disaster. He was good answering the phone and making copies in the beginning. But one month into the job, she had asked him to update a spreadsheet, and found out that he didn’t know Excel. Two months after Bob started, Susan’s company had also landed a few big accounts that she had been working on, putting a lot of extra load on her accounting team. And although her accountants were totally overworked, they had also apparently given up on Bob, saying that they just didn’t have the time to train him to do all the things that they needed him to do. And to cap it off, she overheard Bob scheduling an interview with a temp agency. He actually had the nerve to say that he wasn’t getting paid enough and that is why he was looking! Susan finds herself hoping Bob does find a new job so she doesn’t have to fire him…

There were two key things that Susan didn’t do before she hired Bob that would have saved her (and Bob) a lot of trouble. She should have figured out what duties the position needed to be responsible for, and then figured out the correct pay range for that position.

Before you even launch yourself down the path of hiring someone, you need to figure out what the position is, and how much you are willing and able to pay the position. A lot of employers have champagne tastes but a beer budget. Be realistic. Sure, it would be really nice to have the CFO of IBM handling your money, but if you can only afford to pay them with cookies and smiles, then this might not quite work out. And you might not really need quite that much firepower to do your basic bookkeeping.

So write up a realistic job description, not just for what you need today, but for what you are going to need 6 months to 2 years from now. I can’t stress enough how important going through this process is, especially for a small company or a small department. When you only have a handful of people, you simply don’t have the wiggle room to bring on a person who can’t do everything you need them to be able to do. Figuring out that there is a skill gap after you have made a hire is going to be really bad for both you and the new hire. Look at poor Bob. Susan had seemed really mad that he didn’t know Excel, but no one had ever asked him about it during the interview. And he had thought he would primarily be doing customer service work answering phones, not trying to figure out the difference between a debit and a credit! If Susan had sat down and looked at where her business was going and where she was short on staff, she would have realized that she needed a bookkeeper, not an Office Assistant. Buttoning down exactly what you need will help set expectations, help you figure out what you are looking for in the job search, and help you figure out how much the position should be paid.

The next step is figuring out what the position is worth on the open market. In the old days, employers would often simply ask the candidate what they made at their last job. Tack 5% or 10% on to that as a sweetener to make a person jump ship, and job over, right?, no need to figure out anything in advance! Today, it isn’t quite so simple, especially as new rules are being put into place blocking employers from asking about compensation due to the gender equity issues this question has perpetuated. There are a lot of really good on-line tools (i.e. where you can go and benchmark salaries (for free too!). A lot of us HR types seem to hate these websites, primarily because HR people (and managers) don’t like it very much when an employee barges into the office waving a stack of papers and demanding higher pay. But I have found that these websites have solid data consolidation techniques and methodologies, and are more often than not very accurate when it comes to measuring the marketplace. The key is to make sure you are benchmarking to the correct position when you go and do your search.

The job title by itself is not the only thing you should be looking at when you benchmark! Let’s look at the much-abused job title “Executive Assistant.” This could be literally anything from someone who does light secretarial work all the way up to the person who is second in line to run the entire company. Benchmark for the correct duties, not just the correct title. Get this part of the process right, and you should be in great shape to set the salary range (or hourly rate) for the position. And please, don’t do what Susan did and simply try to pay what you have always paid – markets shift and you have to be able to keep up. Bob had in fact been disappointed with the hourly rate Susan offered, but really needed the job, and was sure that he would be such a great office assistant that he would get a raise right away…

Finally, don’t make the mistake of thinking you are going to hire that bookkeeper and have them performing the job of a Fortune 500 CFO. Again, be realistic. If you are being too cheap, you will end up paying for it when the person can’t perform at the required level.

To sum up, you need to write your job description, benchmark the position’s duties to the market, and determine the salary range. But what if I can’t afford to pay the going market rate? you may ask. And with that breathtaking cliffhanger, we’ll address ways to deal with that in our next blog.

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