How To Rein In Those Runaway Comp Offers

Candidates are approaching job offer negotiations with unprecedented levels of insight and confidence: The US unemployment rate has reached a historic low, and individuals now have instant access to compensation data via websites like Glassdoor and Salary.com.

At the same time, the offer acceptance rate for college grads has declined these last two year, reports the National Association of Colleges and Employers. A survey of all workers shows 14% walk away after accepting an offer.

This means that, for many managers, the temptation to continually pay top dollar in an attempt to land scarce talent may be great. This can lead to chronic knee-jerk offers that easily translate into cost overruns. Emotionally-driven salary decisions can also generate legal and reputational risks associated with pay discrimination.

HR professionals have a role to play in helping managers negotiate with candidates from a place of clarity. When a manager understands that an offer is both competitive and fair, he or she can increase the likelihood that it will be accepted — without feeling pressured to break the bank.

Justifying pay: External data is not enough

Market data is a good starting point because it can reveal whether an offer is competitive and helps you understand the candidate’s frame of reference. Keep in mind, however, that online salary calculators often rely on data that is self-reported and not validated, and therefore, the dollar amounts tend to be inflated. If your organization receives industry compensation data from a trusted source, ensure you are sharing this resource with the hiring manager.

While it is important to know the market value for a particular role, every business is unique. As you and your manager consider the dollar amount in the job offer, it is also important to dig through your own workforce data. Ask these questions to confirm whether the proposed salary is justified.

Question #1. What are we currently paying her potential colleagues?

This is an important question to revisit with the manager, particularly if he is not confident that the candidate will accept the offer.

Your recruiters or compensation group likely set a pay range for the position when the requisition was first opened. At most large organizations, this is based on a comparison of the compensation levels for the people who perform the same role, at the same level, and in a similar geography. It is also set based on a comparison of counterparts across the business — people who hold similar positions but perhaps work in different functions.

Of course, other factors — such as business needs and market demand — come into play when fine-tuning an offer, but an examination of the basic pay range can help a manager articulate a sound rationale for an offer.

Question #2. What is the candidate’s performance potential?

Nobody wants to overpay for a new hire who turns out to be an average performer. However, it is hard to objectively assess a performance differential prior to a hire using traditional methods.

A growing number of companies are going beyond the resume and using pre-hire assessments to accurately determine a candidate’s performance potential. With job simulations and games designed to assess behavioral and/or cognitive traits, organizations can take the guesswork out of the interview process (and level the playing field for women and minorities). The results of these tests can then be analyzed against your company’s internal data – or in some cases, external data – to determine which traits contribute to strong performance for specific roles.

If your organization is taking this approach, you can review the data with the manager to determine whether the candidate is someone who can perform exceptionally and grow with the organization. If this is the case, then a higher salary may be warranted.

Question #3. How urgently do we need to fill this role?

Some managers want all their open positions filled as quickly as possible. As an HR professional, it’s important to step back and evaluate how urgent the situation really is, and whether your organization should pay top dollar to fill a role more quickly.

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First, determine how critical the role is to business success, looking at both your short- and long-term goals. Then connect with recruiting to get an understanding of speed-of-hire for specific locations. If the position is crucial but hard to fill, then a higher-end offer may be justified. On the other hand, if the position is relatively easy to fill, and is not business-critical, this may be a justification for a lower offer.

Question #4: Does the offer fall in line with our gender equity goals?

Gender equity is a big focus for employers and lawmakers, particularly when it comes to compensation. Despite this, many organizations are still falling short of gender equity goals. Data from the Visier Insights database found that in 2017, women made 78 cents to the dollar – that’s 22% less than men.

The cause of this discrepancy is more than just a matter of equal pay for equal work, but at the end of the day, you do need to avoid pay discrimination, and it starts at the job offer stage. There are a number of ways to approach this, but what some organizations have started doing is setting a common starting salary so that men and women automatically get the same pay. Adjustments can be made later to reflect the employee’s contribution.

If your manager wants to pay higher or lower than market value for a candidate, consider how the offer compares to what current employees are making. If you find that a job offer for a female candidate, for example, sits far below what is average for her male counterparts in similar roles, consider adjusting the offer.

Using data to drive up offer acceptance rates

In a tight labor market, more managers are losing perfect candidates at the offer acceptance stage. This can be draining for the manager and expensive for the organization. At times, increasing the dollar amount in the offer can provide the incentive needed to land the right talent. However, it is not always necessary. Helping managers understand the rationale for pay decisions can go a long way towards giving them the confidence they need to explain why the offer is both fair and competitive.

Once this has been established, the conversation can then shift to emphasize the longer-term benefits to the new hire, such as opportunities for growth within the organization.

When job offers are made after a careful evaluation of several key factors, a manager is in a better position to justify the dollar amount. Ultimately, this helps the organization successfully compete for great talent in a sustainable way.

This article originally appeared on the Visier blog.

Ian Cook is recognized for his leadership and insight in the area of workforce analytics and planning. Ian is currently the Director of Product Management at Visier, and is responsible for continually enhancing the depth of insight available within this leading edge application. Prior to joining Visier, Ian built Canada's leading source of HR Benchmarking data. His knowledge and expertise comes from 10+ years of consulting to global companies.

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