Here’s a summary of a recent conversation that I had with a regular client, who asked for some help with creating a Job Profile for one of his company’s new open roles:
Me: So, tell me about what you’d like to see happen during the first 12 months of this person’s employment with your company.
Client: [gives details]
Me: Walk me through the compensation package for this role.
Client: Um…we haven’t created one yet. I figured that I would wait and see who I talked to and would take it from there.
Does this interaction remind you of your approach to defining compensation for your open positions? Do you follow a “let’s see who’s available and then we’ll talk comp” line of thinking? If so, you’re absolutely killing your chances of finding the right person for the job.
Here’s why:
There’s a market for everything. Let’s say that I owned a car dealership (and let’s all agree that, in these times, I’m really glad that I don’t). You, the customer, walk into my showroom and ask me the going price for the 2006 Ford Explorer parked out front. I tell you that the price is $26,500. Did I just give you a good price, or a bad price?
If you were clueless as to the going price for that vehicle, then you’d be incapabable of making an accurate assessment as to whether or not you’re about to get fleeced. Perhaps you’re without a car and need a car so badly that $26,500 is worth it, just to get you mobile ASAP. If that’s the case, you’re likely to make a very poor economic choice, in exchange for peace of mind. On the other hand, if you had spent time researching the current market price for that car, then you’d be in a position to drive a better deal.
Every expenditure on people should result in economic benefit to your company. Some people may be directly responsible for producing revenue, others responsible for driving productivity. It’s common sense that nobody in your company should be drawing salary but neither contributing to revenue nor productivity. Right?
Before you run off and start recruiting candidates for your new opening, consider the economic benefit that they bring to the table. For sales roles, that’s the net contribution margin that this sales reps’ production will yield. For a programmer, that may be features that retain existing customers and help win news ones. For a Controller, that may be increased collections and better cash flow management. Understand what you get, in real, economic terms. Depending on the level of output or the complexity of the job, you will need resources anywhere from junior level to executive level. More economic benefits delivered generally means a larger comp package.
Tailor the salary to the level of resource, not vice-versa. Once you understand the economic benefit to your company, and the level of resource required, then you can begin the process of defining compensation for the role. Don’t just say to yourself, “I need a salesperson” and then post a job that asks for 1-2 years of experience. I talk with people all the time who say they need someone with 1-2 years of experience because they can only afford someone with 1-2 years of experience. Then they’re surprised when the person falls flat on their face, but a few minutes of thinking it through would have resulted in the realization that they needed someone with something like 5-8 years of experience.
The question to ask is, “what level of compensation gets me someone in the top 10% of all performers in this role?” A top-performer at $30,000 is very, very different than a top-performer at $50,000. Sounds obvious, right? I still find clients expecting to get a $50,000 top-performing resource for $30,000. Put a top-performing $30,000 resource in a job that calls for a $50,000 top-performer and you’ve got a $30,000 C-Player.
In Part 2 of this series on “Creating a Compensation Plan,” we’ll explore ways to research the talent marketplace to determine a preliminary compensation range.
