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Use Data to Make Offers With Confidence

Tips on how to hire candidates in highly competitive positions, provided by PayScale's first in-house recruiter.

In today’s tight talent market (where unemployment rate is at an all time low), talent acquisition professionals and hiring managers are facing an increasingly daunting task when deciding what to offer candidates.

In 2018, it is no longer standard practice (and even illegal in some states) to ask for a candidate’s salary history. Counter offers are on the rise and offer acceptance rates are declining. Savvy candidates are now expecting you (the recruiter) to be able to explain what factors contributed to the salary you are offering. If you’re not relying on a strategy supported by data, you run the risk of making offers that are below or above market.

Consistently making offers below market will cause the following to happen: (1) your personal reputation as a recruiter will suffer, (2) your company will quickly develop a poor pay brand in your market which will result in fewer candidates in the top of your funnel, (3) hiring managers will be frustrated at the loss of productivity and lengthy time to fill delays.

Equally as unappealing, making offers above market can quickly spiral out of control. Let’s say you have one engineer who is overpaid by 5%, no big deal. Let’s look at an organization with 50 engineers. For simplicity sake, let’s say the 50th percentile in your market for the profile you are targeting is $125,000. Because you don’t have access to data that says you are overpaying by 5%, and all 50 of your engineers are at $131,250. Annually, you are overpaying by over $300,000.

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Although it appears that the job of a recruiter seems to be getting harder, I think this is good news. The more difficult your job, the more opportunity you have to up-level your function and make an impact to your company’s bottom line. In fact, we should be embracing this time!

But how do you make offers with confidence?

offer-tips

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One of the easiest things you can do to increase your offer acceptance rate and to be seen as a true partner to your executive team is to push your company to develop a formal, data-driven compensation strategy. Below I’ll talk about how a solid compensation strategy will improve your ability to acquire highly sought-after talent in competitive markets.

But what if your company doesn’t yet have a formal comp strategy? What if your executives don’t think it will move the needle? What if hiring managers are just expecting you (the recruiter) to take their order and “make it work”?  

I know that these concerns may be top of mind for some readers. In this piece, I’ll also address the issue of driving organizational change and give you some tools to help you convince your exec team to develop a comp strategy.

Why you need a solid compensation strategy

There are many things that influence the level of talent that you’re able to hire, with compensation (your pay brand) being a key component. If you do not have a well thought out, data-informed compensation strategy, you will have a difficult time producing consistent results. I for one can’t imagine NOT having access to current market data on compensation. In competitive fields, you can be 10% off in the blink of an eye. Below are what I see as the key benefits of implementing a comp strategy.

If you do not have a well thought out, data-informed compensation strategy, you will have a difficult time producing consistent results. Click To Tweet

1. Consistent Results  

Having a solid comp strategy doesn’t mean you pay at the top of market. Based on what we’ve seen from our customers, when they use market data, they often discover that they were overpaying for certain roles and underpaying others. To me, the strongest benefit of a solid comp strategy is consistency.

If you take the time to define your talent market (who are you competing with for talent), decide how you want to pay relative to the market (lead, match, or lag) and what you want to reward (e.g. skills, experiences, tenure, performance, etc.), you will be able to consistently hire the right profile. The downstream benefits of consistently targeting the right profile are many: decreased time to fill, decreased cost per hire, reduced losses in productivity, improved candidate experience, etc.

2. Make an Offer They Cannot Refuse

Another benefit of a consistent compensation strategy you may not expect is this: it allows you to make the candidate your best offer upfront –one that actually excites them. Leading with your strongest offer upfront may seem counter-intuitive, and it takes a lot of confidence to be able to do it, but I believe this leads to a better outcome for both you and the candidate.

When I started at PayScale in 2014, our approach to offers was on par with most other companies. You make an offer, you leave a little wiggle room knowing that the candidate will come back with an ask, and that you have a predetermined amount that you’ll go up to.

I thought: “Why not start with our predetermined number?” If you’re honest with people, and you are genuinely making what you think is the best possible offer, I think people really appreciate this approach. In addition, I hated the thought of going out with an offer for someone knowing that, if this person is really excited about our company and they don’t push back, they’re leaving money on the table. To me, the typical approach tends to punish those that are most excited about working for you.

If you’re honest with people, and you are genuinely making what you think is the best possible offer, I think people really appreciate this approach. Click To Tweet

To make this an effective strategy, you need to lay the groundwork throughout your recruiting process to build trust with your candidates. Communicate early in your process your goal is to offer people a package that they will be genuinely excited to accept.

My idea of an ideal offer experience is: your candidate understands the why behind your offer, your candidate ie excited about the total compensation package, and your candidate understands your company’s compensation strategy so they are clear on what their future compensation trajectory will be based on. I attribute part of our high offer acceptance rate (93%) to our highly transparent recruiting process where we discuss compensation openly!

How to Convince Your Execs to Develop a Compensation Strategy

compensation-strategy

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There are many reasons why companies don’t have formal compensation strategies. Below are a few common examples, and each requires a different approach to address. But before you make any assumptions, start by asking your exec team “Why don’t we have a compensation strategy?”

  1. Too busy. Comp strategy just hasn’t been a priority

For many startups, developing a comp strategy just hasn’t been a priority. If this is the case with your business, it’s important to point out to your execs that doing nothing actually has a snowball effect that can have a negative impact on your business over a longer timeline. As I mentioned before, with low offers, you risk losing candidates and you take on the additional risk they’ll go out to warn others about your “bad” pay practices. This will tarnish your employer brand and restrict your ability to attract qualified applicants into your funnel.

You can also point out the benefits of taking action. While I don’t have the hard metrics to prove it, over the four years I’ve worked at PayScale, I know that the quality of our candidates has increased significantly as we’ve built a reputation as a company that pays fairly and competitively. I’ve also seen multiple companies reap the benefits when they are intentional about their pay practices (e.g. Salesforce, Starbucks, and Fog Creek Software).

  1. Execs don’t think having a comp strategy will move the needle

If your execs don’t think that having a comp strategy will make an impact on your business, you may be able to change their perspective by presenting some evidence. In PayScale’s latest Compensation Best Practices Report, we found that employees and employers aren’t on the same page about pay: while 43 percent of employers believe that their employees are paid fairly, only 21 percent of workers actually believe that they are paid fairly.

An earlier study we did in 2015 on pay perception found that 64 percent of workers who are actually paid at market, still think they are underpaid. Even more shocking, 35 percent of workers who were paid above market still assumed they were underpaid. I won’t get into the details here, but there’s tons of research that shows that employees who feel they’re paid fairly are more productive and stay with the company longer.  

  1. Fear of Having to Pay People More

If there’s the assumption that the data will show that your company would need to pay people more, you can quickly test it out. PayScale allows you to price jobs based on multiple types of salary data. Once you do a benchmarking study, it’s more likely to find that you’re overpaying for certain roles and underpaying others.

Last Thoughts

I believe strongly that talent acquisition professionals are strategic partners to the business. We’re not effective when we are playing the role of “order takers”. If you want to up-level your position, you may have to take some risks. Occasionally you will have to tell a hiring manager: “I refuse to make this offer at that compensation”.

Not every company will embrace a strategic People Team, so it’s up to you to decide how much leverage you have and how much risk you are willing to take on. Recruiting is hard enough when you work for a good company with a solid comp strategy. Also, trying to convince people to accept jobs below their market value is bad karma. 

Chris Stiemert
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