For many managers, the most challenging aspect of creating a job profile is understanding the relationship between compensation and candidate ability.  It’s an interesting paradox - nobody wants to overpay for work performed, but everyone wants an employee who’s at the top of their game.  Entrepreneurs and business managers dream of a perfect world where employees are paid 100% based on output - also known as a “commission-only plan.”  The realities are that 9 out of 10 candidates will run for the hills when they hear the words, “this is a commission-only job.”

So, what’s a budget-conscious manager to do?  Let’s take a look at a recent experience with a client whom I recently advised.  This company, InfoTech Incorporated (yes, I made that up), was an entrepreneur-owned 12 person IT consulting firm that built custom Microsoft applications for midsized firms.  At $3M in sales, the owner of this firm was looking to add his “first full-time salesperson” and set his sights on hiring the best and brightest resource on the market.  This new resource would manage existing accounts as well as land new ones. 

For most entrepreneurs hiring their first salesperson, the results are typically abysmal.  Here are two reasons why:

The entrepreneur isn’t grounded in reality.  My client wanted to hire their first full-time salesperson, but they wanted to do it “on the cheap.”  While I never advocate paying above-market salaries for full-time employees, I most certainly do advocate paying people (1) what they’re worth, and (2) how people in their position are typically paid.  That means not paying people on a 50% commission plan if the market is paying 80% base 20% commission. 

To understand what someone is worth, my first suggestion would be to get online and use one of the many free compensation research tools out there.  For this case study, I went to http://www.salary.com and typed in “Account Manager.”  I scrolled through the list of suggested matches and, sure enough, found “IT Account Manager.”  The description:

IT Account Manager Establishes and maintains business relationships with internal and external customers. Develops IT projects to meet the business needs of the customers. Ensures that IT initiatives are met in a timely manner and within a prescribed budget. Requires a bachelor’s degree in area of specialty and 6-8 years of experience in the field or in a related area. Familiar with a variety of the field’s concepts, practices, and procedures. Relies on extensive experience and judgment to plan and accomplish goals. Performs a variety of tasks. Leads and directs the work of others. A wide degree of creativity and latitude is expected. Typically reports to a head of a unit/department.

That sounds just about right, so I click the “For employers: Base Salary Range (Free)” link.  I’m taken to a bell curve that shows the median base compensation somewhere around $88,000.  To get the total cost of employing this resource, I click the “Benefits” tab, and am shown the following report:

What does all of this data tell me, and what do I do about it?  First of all, I just made a big mistake looking at the median compensation range and ignoring the high end of the scale.  I coach people to ground themselves in the reality that top performers make the top end of the scale.  Why?  Because top people are worth it, and can command higher prices.  The 90th percentile base compensation for this job is a $116,000, nearly $30,000 more than the median.  I needed my client to factor that number into their budgeting.

Second, it tells me that IT Account Managers with 6-8 years of experience have darn good benefits packages - healthcare, 401(k) match, and about 3-4 weeks’ paid time off.  They also get a 5-10% performance bonus, on average.  If you’re a small firm with limited benefits programs (typical of most small firms), then be prepared to make up the difference with salary, stock options, or a work environment that rivals anything your candidate has ever experienced. 

Keep in mind that these numbers are aggregated from survey data sent out to HR contacts at 1000’s of companies in your particular area, so this data is simply a sampling of what’s out there.  Understand, though, that these numbers are real.  If I were make a conscious effort to recruit an IT Account Manager at a comp level below the 50th percentile, I may get lucky.  I also may get a total dud.  My experience working with clients has shown me that one gets what they pay for, especially with salespeople.

The entrepreneur doesn’t do what’s necessary to make an accurate assessment of market compensation.  My client’s usual approach to recruiting was something like this:  (1) Post an ad on Craiglist with a lowball salary range, (2) receive 500+ resumes of everyone from truck drivers to actual IT Account Managers, (3) wonder why no qualified candidates applied for the job.

Posting high compensation ranges on job descriptions made my client nervous, and I understood why.  He was worried about overpaying for someone, or inadvertently giving candidates a raise without having to do so.  I said to him, stop worrying about it.  If you’re following a systematic interview and assessment approach (browse the articles on this site!), then you’re going to ensure that every candidate can back up their current compensation level with documentation.  If someone says they’re currently making a base of $90,000, then a W2 will prove that.  If they can’t prove it, or if they’ve misrepresented their compensation, then what are you worried about?  You just move on.

My advice:  post the total compensation of the role at full quota attainment.  Then talk to every qualified candidate/applicant and determine their current level of compensation.  It’s a much better, and less adversarial, way to have a conversation.  If you’re finding that the candidate who apply are either over- or under-qualified, then you simply tweak your comp range.

There you have it - a simple approach to understand the market compensation for a new role, and a general approach to soliciting interest to gauge your compensation range.  In the third installment of this series, we’ll look at setting the mix between base salary and performance-based bonuses.