Salary Expectations are Determined By the Market

by on June 11, 2009 · 0 Comment POSTED IN: HR Info Center

Develop a philosophy to pay the market and fulfill salary expectations

Essentially, the market makes the rules when it comes to salary expectations. And a corollary to that is what happens when you pay less than the market, your best people leave.

And the cost of replacing is somewhere between 1.5 and 3 times your annual salary. So if you think you’re getting a bargain by ignoring an employee’s salary expectations as determined by the market, you’re in bad shape. You better pay the market to that person that you think is a good performer because if you don’t pay it to them, you will have to pay it to the replacement.

If it’s a point of last resort, that’s one thing, but you’re taking a big chance because the people who come in to resign are seldom your poor performers. It’s your best people who have the gumption to get out there and look for a job. It’s your best people that the market knows about, the market wants. Your worst people, you couldn’t pry them off with a crowbar so you better meet salary expectations. You’ve got to spend weeks and months training the replacement. It’s just better to know what the market is and try to meet employees’ salary expectations.

Some of your people at your companies, if you quit paying them, wouldn’t keep coming to work. In other words, money may not be the biggest factor but it’s one factor in the employment relationship that’s important to some people.

So it’s important that you figure out the market, you pay the market value and that you are able to live up to a performance compensation philosophy. Fewer words are better than more words. And there’s a very simple, straightforward performance compensation philosophy that’ll match an employee’s salary expectations. We pay you fairly for what you do. If you can look your employees in the eye and say, “We pay you fairly for what you do and we strive to always do that.” That compensation philosophy is pretty much universal.

It’s not very attractive but it is comforting. It shows you know you need to pay at least the market value. You’re going to figure out what the market is and you’re going to pay within that. And therefore the conversation you have about salary is not going to be a big adventure. It is what it is.

Edited Remarks From “How to Drain the Drama from Salary Reviews: A Conversation Roadmap” by Gary Markle

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