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September 11, 2003
How to make placements in a soft economy
by Ken Forrester, Managing Director

Headhunters today are challenged in making placements in a soft economy, not only because of the low supply of qualified jobs, but because of the expanding gap between market compensation and internal equity. The demand for talent fueled by the Internet driven economy has pushed compensation to an all time high; yet salary expectation of job seekers has remained at the same level in today's economy; one that is characterized by global uncertainty, falling stock prices, declining corporate profits and massive layoffs. As a result, headhunters can no longer expect employers to offer a huge pay increase, hefty signing bonus, or offer stock options to meet their candidate's salary expectation in order to make a placement. So, in order improve the odds of making a placement, diligent effort must be placed on curbing the salary expectation of placable candidates. This article will focus on the methods headhunters must utilize to narrow the gap between the candidates salary expectation and the client company's internal salary structure.

Market Salary
To fully understand the dynamics of why a gap exists between the candidate's salary expectation and the Client Company's internal salary structure, one must first examine market salary from the applicant and employer's perspectives. Most candidates will tell a headhunter that they are underpaid compared to the market. So the question becomes, what is the market and how does one determine if his present compensation is above or below the market? Even though candidates cannot fundamentally justify their supposition, they will support their belief by disclosing a required salary amount to justify a change in employer. That magical number is the standard 20% increase in pay or the amount:

  • A counterpart recently received when he was offered a position at "XYZ Company".
  • Obtained from conversation with a Recruiter conducting a search assignment who was seeking potential job applicants at his level of experience.
  • His superior is presently earning even though he is the one doing most of his superior's work.

Based on 14 years of recruitment experience, I have concluded that market compensation is a variable that changes with each and every job order. This can also be explained with the economic principles of supply & demand. In the talent acquisition market, supply represents the average salary of the candidate pool of screened applicants for a given job order. This is not the average salary of all candidates with a specific level of experience, but only the applicants that has expressed interest in interviewing for a particular job. Demand is the level of interest that is generated from the publicity of a unique job opportunity with a specific employer, at a specific level of compensation in a given location. If equilibrium price in the economic principle is realized only when supply equals demand, then market salary in the talent acquisition market is the salary amount that a screened applicant from the candidate pool will accept for the given job opportunity. Keep in mind that a job opportunity from an attractive employer will generate a larger pool of qualified applicants than any other job opportunity. With that in mind, the average salary of candidates for a very attractive job opportunity will most likely be lower than the average salary of the typical job opportunity. Based on the numbers, if there is very large candidate pool, a successful hire can be accomplished at a lower salary. If only a handful of active candidates is generated for a typical job opportunity, then it most likely will result in a higher salary to make a successful hire. So the high risk-high reward theory is in effect, in this case, the more attractive the job opportunity, the lower the compensation requirement for an acceptable offer by a qualified candidate.

Internal Equity
An employer will view market salary as simply the amount they are presently paying or recently paid to hire someone at the given level of experience. By design or default, most company's individual pay structure is quite simple. In each of their divisions/departments, the senior managers are paid a higher salary that the mid-level managers and the mid-level managers are paid a higher salary than the lower level managers. Managers progressed up the ranks through promotions and merit increases. When a new manager is hired, the HR folks who are typically sensitive to their internal salary structure will always design a base salary that will adhere to that structure because they are very concern about upsetting the apple cart. Morale would be compromised if it became known that a mid-level manager earned equal or more salary than a senior manager; or a younger mid-level manager is offered equal or more salary than a loyal veteran middle manager.

Pre-screening Candidates
Most Recruiters will agree that during job offer stage of the recruitment process extensive negotiation is often required to bridge the gap that exists between the Client Company and the applicant. Extensive negotiation is a requirement because the Client Company is often focused on the "old school" internal equity issue and the applicant is often driven by the fathom market salary compensation. So, the stressed Recruiter is often caught in the middle, desperately trying to appease both sides to make a placement while time is ticking off the clock.

The "ABC" of successful recruiting is very simple: Always Be Closing. The best time to start closing the candidate is during the pre-screening, interviewing, and offer stages of the placement process. If at anytime you determined that a candidate's current compensation is at the high end of the salary range compared to other candidates for the same job opportunity, then it is essential to further probe that candidate to determine how he actually achieved that high level of compensation. If a candidate has a high salary compared to his years of experience, this means one of the following:

  1. He is a true superstar and has out-performed his peers.
  2. There was rapid growth in his division and he achieved a windfall salary because he was in the right place at the right time.
  3. His division is a "sweat shop" and because of high turnover his employer often-utilize counter-offer inducement to retain staff.
  4. His employer is located in an unattractive location thus must pay top dollars to attract talent.
  5. His employer/department is high risk (start-up/small fish) and must pay top dollars to attract talent.
  6. He often changes employers and has increased his compensation with each move.

Fast Trackers
If based on in depth probing you determined that your candidate is a legitimate superstar, then less convincing is necessary to get his salary expectation in line. That is because if he really wanted a pay increase he would have the confidence to simply ask for and most likely receive one from his current employer. So his real reason for seeking a change in employer is more of a motivator than an increase in salary. Most closing problems occur when working with fast trackers that are not legitimate superstars. Fast trackers are the applicants that will gladly go to the highest bidder for their service. They will burn bridges with employers and gilt a Recruiter at the altar because they view counter-offers as simply a tool to attain an increase in pay. To improve placement results, headhunters should simply walk away from the fast trackers because of the low odds of making a successful placement today. Valuable time is often wasted by working the fast tracker through the interview process because most often he will be eliminated from consideration at the 11th hour because he is perceived to be overpaid or inexperienced compared to the candidate pool. However, if the fast tracker is selected for the offer, be prepared for a battle as he will seek a huge pay increase to accept that offer or he will easily use that offer as leverage to obtain a counter-offer from his present employer. If you must work with the fast tracker then it is imperative from the start that you are firm in educating him on current market conditions, market salary, and internal equity prior to presenting him to your client. If he continues to work with you, he has a stronger motivation other than money for seeking a change in employer. The fast tracker who chooses not to work with you will simply wait for the next inexperienced headhunter that will assist them in obtaining that huge pay increase or a counter-offer.

There are more similarities than differences between the superstar and fast tracker. Like the fast tracker, superstars are also highly paid, but typically have longer employment tenure with past employers compared to the fast tracker. This is because in evaluating a career opportunity, superstars are motivated by the future long-term potential of the job opportunity and are less concerned about the initial pay increase. They will often win acceptable job offers because they sell themselves in terms of being big picture thinkers and problem solvers who understand the employers' business and problems. Superstars are not hindered by the internal equity issues because they are confident that they will be quickly promoted to the next level once their new employer recognize their skills in generating revenue, reducing expenses, and improving efficiencies in retaining clients and energizing staff.

Closing the candidate on salary issues starts from the information gathering stage of the placement process. Here is what the Recruiter should and should not do:

Do not divulge a salary amount or a salary range in your initial conversation.

  • The danger in giving out a number or a range is because the candidate will use that specific amount or the top-end of that range to determine his interest level in exploring the job opportunity. That amount eventually will become his salary expectation for an offer, should one be extended. If the candidate request salary information, simply inform him that you do not have a top end for the range, as the salary will be commensurate with experience and the company will take into account the amount that he is presently earning plus an increase to construct an offer. So salary is negotiatable.
In obtaining current salary information, do not ask the direct question; what is your present compensation?
  • Asking that direct question will increase the odds of receiving an inflated salary amount that can eliminate that candidate from consideration or surely present closing problems at the offer stage. To improve your odds of obtaining the sincere salary information and gain insight as to the amount it would take for the candidate to change employer, you may want to ask two questions.
  • Based on the experience that you will bring to the table what do you feel is your worth in the market today? The amount he tells you is most likely the amount that he is seeking to move. Where are you presently in relation to the market? He will most likely tell you the exact amount he is presently earning because his objective is to convince you that he is grossly underpaid in relation to the market. These two pieces of information should determine your next step with that candidate.

Do not ask what amount of salary it would take to accept the job offer? If so, you will get the standard "show me the money" or "let's see what they will come back with first" response. Asked these two questions instead!

  • Regardless of how great this opportunity is for your career, if they came back with an offer, what amount will be an automatic no, just too low for you to consider? Here is the follow-up question: Regardless of how great this opportunity is for your career, if they came back with an offer, what amount will be an automatic yes, a "no brainer" decision? You must insist on getting each amount, because the two numbers will give you the high-end and the low-end of his salary expectation. This is meaningful information that can use to help the employer construct the best offer. If you are unable to obtain these two numbers from the candidate, this is a red alert that there is a slim chance of receiving an acceptable offer.

Back in the late 1990's there were more jobs available than candidates to fill each job and employers aggressively utilized compensation as a tool to compete for and retain talent. Today employers have less job openings to fill and are more cost-conscious in reducing expenses including payroll, benefits and search fees for that matter. So in an effort to jump starting the economy, headhunters must do their part by successfully placing more candidates, which will then create more placement opportunities for other headhunters. But, in order to place more candidates in today's economy, headhunters must be successful in closing the gap that exists between salary expectation and internal equity.

  About the Author
Ken Forrester, Managing Director of A.W. Forrester Co
Ken Forrester is the Managing Director for A.W. Forrester Co. a full service executive search firm that specializes in health insurance and employee benefits industry. He can be reached at (954) 722-7554.

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