Friday, July 21, 2017

The "Compensation Conversation"

Ahh yes.....the "Compensation Conversation".

Let's face it, no matter who you ask about this subject, you'll get a different opinion. Candidates, recruiters, hiring managers....each of them have not only a different interest and view point, but different situations even within their own ranks. I truly believe that this is one of the most talked about areas of a job search - where people on all sides (candidate, recruiter, hiring manager) want to make this black and white....and guess is anything but "black and white".

To consider some of the things that go into a compensation perspective, let's start by simplifying and talking mainly about base salary + bonus. Sure there are a ton of other things that fit under the compensation umbrella (ie...benefits, culture, perks, flexibility, growth, etc.), but those are too difficult to discuss all at one sitting. Let's focus mainly on base salary and "guaranteed" or at least "expected" bonus.

Here are some things to consider from each of the different players:

Remember, what you make is NOT your personal or implicit value....but it is your current MARKET value. That means a few things.

  • You should do your homework and research to get a sense for the market value of those similar in experience to yourself. Take into consideration things like: size of company, geography, years of experience, education, titles, demand vs supply.
  • Talk to people (you trust) that are doing similar work to you, check out online calculators, talk to recruiters or career coaches...gather data (but take it with a grain of salt or two and be realistic in the data sources).
  • Do math and stuff. Do you know how much your benefits cost? How about your commute? Vacation time? Unless you put a $ on cost, you can't really compare them to a potential new offer. Spend the time to figure out exactly what your budget is...this gives you flexibility in what new compensation ranges you can actually consider and how much different salaries will actually change (or not) your current lifestyle. This is vital when making a change as big as a new job!
  • What is your value currently...well, if you only have one job and no offers...your current compensation IS your market value. How much does your current company value you? Be realistic here...sometimes your current company values you more than a new company will...sometimes less. Perhaps it's time for a conversation about growth and comp increase instead of time to look around...
  • What is supply/demand like currently for your skill set? How many job openings do you see posted? Last time on the market, how many offers did you have (and what has changed since then - for better and worse)? Remember: interest is not interviews, interviews are not offers....offers are king!
  • It's crucial to know whom you are competing against for the role as well. Are there internal candidates being considered? How many qualified candidates have applied so far? How long has the role been open? Is it filling a gap for someone that left, or brand new?
  • How do your skills/experience compare with a similar role at a new company. Keep in mind that the more of your positions/roles there are at a company, the better knowledge of market value they will likely have. Most companies will compare you against who they already have and adjust offers accordingly. 
Hiring Manager
As difficult as it is, remember that you are dealing with people here....that's right....PEOPLE, not resources.
  • Most hiring managers have a budget that they need to adhere to. Often a hiring budget is based on a few things, including: 
    • What are the current team members in and outside of this role making?
    • What did we pay last time we hired this role (and how recent was it)?
    • What is current market supply/demand for this skill set?
    • What else needs to get accomplished with this budget amount? 
    • Do I have any flexibility on salary, bonus, or benefits?
  • Keep in mind that some managers are building a team, some just filling a need. This could have a huge impact on any new offers.
  • How many QUALIFIED candidates am I seeing for this role. The more good candidates a company has access too, the less likely they are to go outside of the established budget. If there are choices in applicants, most managers will stay on budget - even if you are the right might not be the right fit for the established budget (and yes, that matters to a company).
  • Do I have anyone internally that is interested in and qualified for this role? Promote or hire internally first when you can. It is often a better long term fit, better for team morale, better for culture.
  • As a manager, please remember that $5K up or down has a much bigger impact on a candidate than it typically does on a team budget or company. It could be all the difference in the world to someone that is trying to make a move make sense. 
  • You should always make the best offer you can - and let them know that up front. If you are trying to save a few $ by low balling...not only are you at risk of losing a good candidate, but also getting a good candidate and establishing a poor culture.
  • Finally - just like a candidate, you should know the market. Do research, find mentors and colleagues at other companies (that you trust), use online tools.
Yep...recruiters often have a role in this as well. You should know their role too.
  • Know the recruiter's role in this. There are things you should have a basic understanding of when it comes to recruiters:
    • Agency Recruiter - this is a recruiter that isn't employed by the company you are interviewing with. They are typically compensated in one of 3 ways:
      • Contingency - meaning that they work for free until they place a candidate. Usually they will get "x"% of the first year salary or total estimated compensation that is paid to the candidate. Meaning, if a candidate is paid $100K and the rate is 25%, the recruiting agency will be paid $25K. 
      • Retained - meaning that the agency has already been paid part of the percentage up front, another third is paid when interviews take place, the final third when a candidate is placed and starts for the company.
      • Negotiated contract - meaning that the agency has a flat fee per head (regardless of what the compensation of the candidate is).
    • Contract Recruiter - this is a recruiter that is contracted by the company and paid an hourly rate. Most contracts are for a time period, not for an actual number of hires.
    • Corporate Recruiter - this is a recruiter employed by the company...typically on salary, sometimes HR, sometimes outside of HR.
  • Once you know the recruiter's stake, it's easier to determine if they are advocating for you or the company....or both. 
    • Agency recruiters on contingency don't get paid unless you get hired. They get paid based on what you make. Keep in mind that the fee does not "come out of your salary" - this is a common misconception. They want you to make as much as possible (it helps their fee go up)...but let's be realistic...they want the company to hire you too (some money is better than none) it's a balance for contingent recruiters. They also are incentivized to make sure that you are the right candidate - as most have a guarantee that a placement will stay at least 90 days or more. They can be your ally (if you find a recruiter that you trust and can be open with) or your enemy (there are plenty of bad recruiters out there). Yes, I know that the fee looks huge, but remember, most recruiters only see a percentage of that (unless they are a one person show)...the company takes a huge chunk, and other people involved in the process do as well. I say that so you as a candidate know that $5K isn't really that much more or less to a recruiter in the end either...meaning, they won't want to lose a deal (either way) over what amounts to a few hundred dollars or less in their pocket.
    • Contract and Corporate recruiters are typically paid a set rate independent of how many people they hire. That is a good thing for you as a candidate - if they are hiring well. If they are not, they won't last long. Typically, they'll have a good idea of what the salary range really is. They don't ask typically to negotiate you down...they just don't want to waste the hiring manager's time if you are not in or close to the established range.
There are certainly a number of things that this post doesn't cover when it comes to compensation. It's difficult to be all-inclusive in this type of forum. Other things to consider would certainly be things like culture fit, mission, cool projects, growth potential, stability, perks, benefits, flexibility, commute, company brand....the list goes on and on. I've also seen that it usually comes back to base salary as the focal point though, because benefits don't pay bills. 

I guess what I'm trying to get across to all sides is this...compensation is a complex issue. In my opinion, it is best approached early and often in a job search. It should be a transparent conversation (understanding that certain things may not be able to be fully transparent) and happen with an open enough mind to see that there are at least 3 (sometimes more) sides to the conversation to consider, empathize with, and understand. I hope this helps someone.