In the December 7, 2010 Ask The Headhunter Newsletter, an employer asks how to set the salary for a job offer.
I’m an employer, and I need some information on the average salary I should expect to pay an experienced (5-10 years), degreed individual to manage part of my software company. I am looking for someone who can take over and manage with little or no supervision. How do I set a salary on this?
Here’s the short version of my advice: (For the entire column, you need to subscribe to the free weekly newsletter. Don’t miss another edition!)
No salary database describes your position, or the particular manager you want to hire. You might find some data that appear to be relevant, but just one factor could throw off your entire calculus and lead you to make a terrible mistake.
I know that you need to set a range for your budget, but why not think about this person’s salary in a new way that might attract the best candidates? (Why would you want to focus on average salary? Do you want an average hire?)
Ask yourself, Is my hiring strategy to limit my costs, or to boost my profits? That is, are you willing to pay more to get more? This requires some analysis that few employers consider.
How much added profit could a candidate add to my business? In the interview, ask candidates to discuss their abilities in those terms. How would they increase your profits by 10%? Decrease your costs by 15%? Create products that increase market share by 20%?
Then, pay based on added profit.
(You say you can’t calculate profit for a particular position? Well, then your business plan is totally screwed. But don’t feel too badly — few employers have any idea how a single job contributes to profit. Think about that: How can anyone run a company rationally if they don’t know how each job contributes to the bottom line? My suspicion is that this problem is a fundamental cause of business failure.)
A candidate who can answer those questions in a compelling way may be worth more than the market—or any salary survey—suggests. So, think out of the box. Turn your interviews into working meetings where you and the candidate roll up your sleeves and tackle ways to improve the job to make it more profitable.
This sort of interview turns into a business planning session…
(If you’re a job candidate, don’t let salary surveys limit your job negotiations, either.)
Maybe HR told you there’s $X in the budget for the job you want to fill. Maybe you checked the industry averages and set the salary range accordingly. Maybe you picked a number out of a hat.
Maybe you have no idea how the job is supposed to contribute to your bottom line!
Which is it? How do managers decide what salary to offer a new hire? Let’s talk dollars. How do you think they should do it?