Shawnee Love   •  
October 3, 2014

A question I get a lot is

How do I decide what wage to offer a candidate?

The answer of course depends on what type of position is being hired (e.g., is it role that would typically have a commission or bonus) and the stage of the company (start ups typically have limited budgets and limited people so the right answer in their case has a lot more to do with future expectations than current reality).

Let’s assume for purposes of answering the pay question, that we are talking about the majority of situations, i.e., the company is:

• Past the blush of youthful start up,
• Growing or at the very least sustaining moderate success,
• Financially sound, and
• Has more than a few employees and enough to do the work.

In these circumstances, I advise clients to choose a wage they can afford (i.e. the top end of the range) that falls nicely between:

• What the market says the job is worth,
• What is fair in the context of the other employees, and
• What the candidate (appropriately qualified and experienced and realistic) expects.

Let’s look at all 3 a little closer:

Market:  It is so important to find out what this job would make at other relevant companies, but choose your relevancy wisely.  If you are drawing people from another geographical location, you have to consider the market rates in the other location as well as your own to get to the elusive “fair“.  If you are hiring from your own geography, then perhaps relevant is just your area, but it may also be your industry, etc.  If the position is highly specialized, it may be that the market range is determined by the specialization as well.  The point is to be thoughtful about who you are actually competing with for candidates and to use that “market” as your comparator.

Other Employees:  Usually, clients have a good sense of which jobs are most critical and thus most valuable to their organizations and they are also clear about the performance and thus relative value of their employees.  Knowing that information, they can usually estimate where a potential new hire’s compensation should fall based on where others in the organization currently are being paid.

Candidate:  This consideration is a little trickier, because I have never yet met an employee who didn’t think he or she deserved more money, and with very few exceptions, I find candidates are very clear that a new job is their best chance to increase their compensation.  With these truths at play, you have people asking for the moon when they provide their salary expectations.  That is why it is so important to have an idea of your range (based on market and other employees) before you begin interviewing, and why you should be clear with overpriced candidates that their compensation expectations are too high for your job.  I have found on many occasions that when I explain the candidate isn’t proceeding any further because he expects too much money, he miraculously discovers that he doesn’t need or want as much as he stated.  He was effectively fishing.  Shame on you if he catches you.

If you are lucky, those 3 measures of fair wages (market, other employees and candidate expectations) pinpoint on a single number which you can offer to your future employee.  However, more often than not, like the triangle picture above, the right number is within the triangle and it is up to you to choose wisely for today and for down the road. Because there is nothing worse than angering a loyal employee when she finds out the new person is getting a wage it took her 3 years to earn.  (More on this topic next week.)  This is enough for now. I would love to hear your thoughts on how you decide what to pay your employees.