I was working with a C-suite decision maker last week on a new hire job offer for VP level job. The candidate, Sara (not her real name), should be paid at the top of the base salary range given her years of relevant work experience, education, track record of strong performance, and work location.
The C-suite leader – I’ll call him Bob - was struggling with paying her at the high end of the range because of how that compares to the pay of other VPs. These other VPs were paid below the base salary range midpoint. In other words, they weren’t being paid a competitive salary. (Yes, midpoint was anchored to median of the market.)
Bob said, “This doesn’t feel right to bring in Sara this high.”
I shared with Bob that gut feelings aren’t good rationale for pay decisions. That leads to bias and inconsistency.
Employers function in a world where pay transparency and equity laws exist. And if we find that some “similarly situated employees” to a new hire are paid low, then we need to develop a plan to adjust their pay sooner rather than later. It isn’t a reason to not pay the new hire what they are worth.
This is our new reality.
· Gone are the days where a 3% merit increase budget is enough when you are planning for your next fiscal year.
· Include 4% - 5% for merit increases in your budget. Have another 1% to 2% set aside for market adjustments and internal equity adjustments.
· AND if you think that is too high, compare your base pay ranges and incentives to the external market. Make sure you are using quality compensation data to benchmark the jobs. Then compare how your employees are paid to the external market.
· You will find issues with how you are paying people. Some will be paid too little. More will be paid too much.
· And 3 – 6 months in advance of your budget planning process, this total compensation analysis should be done so you can talk to Finance and the C-suite leadership team about their options. Data tells a story. Make sure your story is fact based and grounded in reality.
While inflation has decreased in the U.S. in recent months, we are still in a tight labor market. We don’t have qualified candidates for all the jobs that are open.
Employers need to have enough money budgeted to attract, retain, and keep their employees engaged and productive. If you don’t, other employers will.
Do not fight reality.
What did Bob do with Sara’s job offer? He paid her at the top end of the range. We also developed a plan to increase the pay of the other VPs over the next 6 – 9 months.
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