An employee’s experience with compensation starts at the beginning of communication with a prospective organization, during the recruiting process. And, whether or not you’re aware of it, there is a story being told (true or not) about what people believe you pay, how you pay and why you pay the way you do.
Today’s organizations can’t afford to keep quiet about compensation, even before initial outreach to potential candidates. With all the recent legal, social, and economical influences on talent acquisition in this tight labor market, solidifying & communicating your pay practices as part of your larger people strategy, is imperative.
Having a compensation philosophy and subsequent pay communication strategy for the entirety of an employee’s lifecycle can be the difference between retention and turnover. Stay competitive in the war on talent by having data-informed discussions about compensation up front.
When job seekers believe that your organization values people and pays them well, you’ll attract more qualified applicants. In fact, LinkedIn data show that a strong employer brand leads to 50 percent more qualified applicants. Candidates want to align themselves with the vision of an authentic company culture.
The way your future and existing employees feel about the compensation and benefits at your organization is one of the most impactful factors on your ability to attract talent. This is your Pay Brand. Your pay brand is not only shaped by the way you pay (including how much and why), but also by how you talk about pay with employees.
Conversations are happening everyday about your company and you have the opportunity to make your message around compensation intentional. A strong pay brand will retain existing employees. It will also encourage them to share your future open roles with their network.
There are some key foundational pieces that you need to have in place to provide your recruiting team with the ability to have these conversations. Once you get this foundation in place, you can then focus on teaching recruiters how to have better compensation conversations with candidates.
To translate insight to action, organizations must cultivate a structure and process for their pay brand. They need to decide how and why pay decisions are made. This is a part of a compensation philosophy. A compensation philosophy provides overall direction for how you intend to use your compensation budget. It answers how you will prioritize your compensation spend based on principles and values that are important to your business. You can think of it as a mission statement for your compensation plan. A compensation philosophy enables recruiting teams to really educate candidates on the WHY behind what and how the organization pays.
Accurate Real-Time Data
In order to answer the why, what, and how of pay, an organization needs reliable, market-based compensation data. A compensation philosophy, and subsequent strategy, is only as strong as the data you put into it. If your organization is relying on free internet searches to amalgamate the salaries of your workforce, you are putting yourself at serious risk for turnover. Conversely, if you’re organization is making a point to purchase and utilize salary market data, whether verified crowdsourced and/or employer submitted market salary surveys, you can attest that the decisions you are making around pay are current, accurate, and validated.
Choosing the right salary market data source(s) for your company’s specific needs will require research and interdepartmental communication. You will need to define your current talent market based on a combination of your industry, company size and location, as well as other employers who are looking to hire the same types and caliber of employees as your business. Once you’ve established this, you can approach which specific provider(s) of salary market data your business will benefit from the most.
This is where compensation strategy really kicks off, as paying people fairly and accurately doesn’t stop at getting accurate data and lining employees’ salary to market. To make sure your pay practices are aligned with your talent strategy and overarching business goals, you’ll want to create salary ranges (or pay ranges) for your jobs. These are essentially guardrails for decision making; they determine how much you’re willing to flex to hire someone and/or keep them in your workforce.
For more about why you need salary ranges and how to create them, check out our Comp is More Than Data Whitepaper.
For companies that don’t set compensation expectations early in the process, the costs are felt in more than lost talent, they are also felt in time lost interviewing the wrong people for the wrong budgets. This is where having excellent relationships and frequent communications with your compensation team(mate) comes in handy.
Taking time to foster interdepartmental partnerships is pivotal to establishing an organization’s pay brand, compensation philosophy, compensation strategy, and ultimately contributing to steadfast talent acquisition and retention. It’s important to have visibility and buy-in as early as possible, so that the function runs smoothly for candidates and existing employees alike.
Hiring managers, recruiters, and compensation professionals should have frequent and definitive conversations around pay. Whether this be a weekly, monthly, or quarterly meeting, or daily instant messages, it’s important to keep the line of communication open to cultivate trust and cohesion for the organization at large. A guild between these important pay stakeholders will ensure fluid processes, both internally and externally.
Now that you have the foundation set, your next area of focus should be on teaching your recruiting team how to communicate effectively with candidates. Even if you have a great comp philosophy, accurate data, and a strong partnership with internal pay stakeholders, if recruiters can’t deliver this message to the market, you will still struggle. There are four key areas that we recommend you focus on.
Currently, in year 2020, there are 18 state wide bans and 21 local bans that have outlawed pay history questioning. These laws are aimed at ending the cycle of pay discrimination and some go further than merely banning pay history questions. The reality is that the market value of an employee is not based upon what they made at past jobs. Rather, it’s based upon what workers in the same job who possess a similar skillset and experience level are making in the same labor market.
Fairly paid employees = happier employees = more productive employees = better performance and higher profits. Getting people at a ‘discount’ doesn’t lead to a long term happy and productive employee. Even in states where it is legal to use this information, it is a best practice not to ask for a candidate’s salary history as it can be off-putting to candidates and not a great way to start a relationship with a future employee.
How can you structure your conversations with candidates so that barriers are down, and you are able to have a transparent conversation based on data-driven figures? Well, the number one frustration for candidates is lack of information about pay and benefits, so being thoughtful about how to structure these conversations is critical.
Initially, your recruiting team needs to define the role they play in the process. Let people know your intentions as corporate recruiters in building and scaling your company. Talent acquisition teams that are not commission based may want to express that there’s no incentive to try to get talent “at a bargain”. Express that your organization is trying to find people who will be happy at your company for a long time, and that you recognize a big part of employees’ longer-term satisfaction will be tied directly to compensation.
Providing candidates with an overview of your compensation philosophy and how you utilize salary data confirms that your organization has a tangible compensation strategy and that you are being strategic about pay decisions. However, not everyone is comfortable discussing this topic, so providing two directions for how the conversation can proceed in the way a candidate prefers can reduce anxiety around this part of the process. You don’t have to talk about compensation immediately, or you can share the pay range for the role a candidate is applying for and see how it aligns with their expectations. This can be a breaking point for whether there is a potential fit or not and whether to move forward with interviewing.
BEST FOOT FORWARD OFFERS
If your talent acquisition team has followed through on the suggestions thus far, by the time you get to the offer, you should already be aligned with your candidate on compensation. People don’t want to feel like they are being duped. By communicating your strategy to them prior to making the offer, you’re ensuring through honest, transparent conversation that the arrangement is more than fair.
There’s a lot to be said about not holding a percent ‘card’ up your sleeve. There’s no reason to underhand an offer if you are being forthcoming about pay. If you’re not clear with your candidate about the way your company handles compensation once they’re on the team, they’ll likely have their own ideas about how it will work, and they’ll reference their own experiences. For those who are most excited to join your company, you don’t want to punish them for accepting an offer that they are happy with if you knew you could afford to give them more.
Additionally, research shows that for a variety of reasons, women tend to negotiate less, so if you’re making lower initial offers every time, you are stacking the deck in a way that you don’t want to. In doing so, you could be impacting your organization’s gender pay gap in a way that could put you at risk for a pay equity lawsuit.
REALISTIC EXPECTATIONS FOR FUTURE COMPENSATION
If you do choose to stretch to make a high offer, be sure that the hiring manager and the candidate are aligned on future expectations for their ability to move through their range. It might be okay to hire someone at the 80th percentile if they’re only going to be in that role for one year. However, if someone is highly motivated by always continuing to make more money, by stretching you make it hard for them to have future increases, and you will potentially lose that person.
That’s why it’s important to have a conversation around future compensation expectations early, including bonuses, raises, promotions, and career path. Let the candidate (or new hire) know what time of year your company evaluates performance and compensation. Communicate what percentile they fall into, whether they are high or low in the range, and what this means for their immediate future.
Ultimately, your recruiting team is the first interaction that most future employees have with your company, so you will want to make sure that you are being thoughtful in this stage of the employee lifecycle as it sets the foundation for your relationship with this employee.
Employee Lifecycle Management
It’s important to discuss future compensation with candidates during the offer process, but it’s also important to talk to them after they start their new role at your company. As much as we communicate through the recruiting process, it’s important to remember that many people are overwhelmed when accepting an offer, so it’s good to communicate expectations again as soon as possible. Considering pulling the new hire’s Total Compensation Report to share in the first few weeks after hire to reaffirm your company’s compensation philosophy and pay practices
Top-performing organizations tend to consider pay to be an ongoing dialogue with employees, not an annual event that comes and goes. It’s not enough to pay people well or have a good value exchange. If that message isn’t consistently communicated, it’s not appreciated — and employees will not give you the benefit of the doubt.