March 20, 2015

Determining how to pay for new employees

How Much Do I Pay? Do I Make Them Earn It?

A frequent question we get here at CEDR is: “I’ve found a potential employee, but how much should I offer to pay them when I don’t yet know what they’re worth?”

It’s a legitimate question and an understandable concern. You don’t want to offer this potentially great employee too little and risk them walking away, but you also don’t want to pay more than you can afford or the position calls for. As such, this question rarely has a black or white answer.

One effective solution to help you determine how to pay someone a fair yet competitive wage from the start is to categorize the applicant in one of three ways.

Before we discuss the categories, consider the following. During the interview of our recently hired paralegal, we learned she was being underpaid in her previous job, and that our per-hour offer we were about to make was already, unbeknownst to her, $3-per-hour more than what she was making, plus benefits. What would you do in this situation? Would you drop the pay to meet her expectations because you could, or hold it at the level you think is right for the market and the position?

The main point is that the amount you pay a person does not create the level of performance or quality you get from the employee. As it turns out, she would have done a great job at either rate. However, by keeping our offer at a fair level, we set the stage for a loyal and dedicated new employee committed to showing us she was worth it. And we kept our integrity.

Something else to remember is that you often know within a day or so if the person is right for the team and the position. Certainly within a month, you’ll know for sure. If they are not what you are looking for, not excelling, not a rock star, let them go.

The three categories of new hires are as follows:

Type 1: We call this type “the difference maker.” This applicant is being intentionally searched for and interviewed with the following in mind: they have knowledge, skills, and abilities in areas that exceed the company’s current skills or knowledge, and are being brought in to raise the overall level of the company and/or a specific area. This can be applied to absolutely any position, from a front desk receptionist to professionals.

Type 1’s come your way through an intentional process. Frankly, until you are willing to adopt the tools that help you build your “hiring muscle,” finding this person is pure luck.

Type 2: Really smart and very good in the interview, but have little direct experience for the thing you need them to do. Their background and experience checks out well. If you can train them and they have self-efficacy, you are probably going to get a top performer and perhaps a leader. We call it “hiring smart and training to the position.” It’s time consuming, but usually worth it. It’s also a very good argument for why you need good systems in place and a team that can train new employees. Type 2’s will often take less to start, and it’s okay to save room in your budget to give them raises once earned.

Type 2’s come from just about everywhere. However, these applicants often easily jump past the hurdles of a detailed application process and interview and end up as great candidates.

Type 3: They have some experience and you can see they probably can do a good job. It’s a guess as to whether they will be a good hire or not. These folks have interviewed around and know the market. They are likely to ask for more to see if they can get it. Don’t get sucked into paying more than you know is fair here.

Type 3’s are found on places like Craig’s List and are often a result of a “passive luck-of-the-draw interviewing and search” technique.

If you’ve got a Type 1 person in front of you, and you’ve done your best to verify their abilities and talents, try to get as close to their reasonable demand as you can. Don’t weed out a great potential employee by missing the opportunity to pay them everything they are worth. Instead, get them in, work with them, and if they are not what they imply, aren’t a fit, etc., then let them go.

The bottom line is, employers need to be wary of a salary determination method that essentially says, “I’m going to negotiate everyone that applies down to a lower pay, just in case I chose poorly or until they prove they deserve it.” In most cases, a professional like Type 1, as described above, is not going to play this game.

Consequently, a good rule of thumb is don’t continue to keep mediocre employees that, at one time, you might have been willing to pay $19 dollars if they were great, but now you just keep them around because they will take $14. This seems like a net loss for the employer all the way around.

Have a question about the three types of employee candidates or what to pay them? Call us toll free anytime at (866) 414-6056 and one of our in-house HR experts will help you find a comprehensive solution that you can be happy with.

Friendly Disclaimer: This information is general in nature and is not intended to provide legal advice or replace individual guidance about a specific issue with an attorney or HR expert. The information on this page is general human resources guidance that is believed to be current as of the date of publication. Note that CEDR is not a law firm, and as the law is always changing, you should consult with a qualified attorney or HR expert who is familiar with all of the facts of your situation before making a decision about any human resources or employment law matter.