By: Elias Cobb, National Recruiting Manager at Quantix, Inc.

Can someone explain how these scenarios make sense:

1. Company ABC has John Q. Developer working there, making $75,000.  John Q. Developer feels he deserves a raise, given his longevity, and because he is getting calls from other companies and recruiters offering in the neighborhood of $90,000+ for the same job.  Company ABC either declines to give him a raise, or offers him a nominal raise.  John Q. Developer quits, getting $90,000 at his new company.  Company ABC opens a new position, and hires a new developer at….you guessed it, around $90,000 BECAUSE THAT’S WHAT THE MARKET WILL BEAR.  Yes, I mean to be “yelling” that.  Now the company has lost all that knowledge and an employee whom they know and trust, and saved nothing. 

2. Company XYZ is hiring a QA Engineer.  They are offering a salary of $80,000 for the position.  Two people apply.  Susie Tester, making a current salary of $75,000, with four years of QA experience; and Mary Quality. Mary is admittedly underpaid.  She has been at her current employer for over eight years and moved into QA five years ago, but never really got a raise commensurate with moving into IT.  She is making $55,000.  Both testers are asking for $80,000, because, well, you guessed it – that’s what they’re seeing on the market.  Company XYZ interviews both, and realize that Mary is a better fit.  She has better skills, and is a better culture fit.  But they offer her $65,000.  Why, you ask?   Well, because they can’t authorize a raise of $25,000!!  She should be delighted with a $10,000 raise (insert sarcasm).   So Mary turns it down because there was another company with some foresight who paid her $80,000, because THAT’S WHAT THE MARKET WILL BEAR.  Now Company XYZ has Susie Tester, whom they didn’t like as much, or they have to restart the entire hiring process.  They end up hiring someone else, for the exact same $80,000 they would have paid Mary anyway, and taking an extra six weeks to fill the position. 

Seriously, can anyone explain these to me?  I’d really like to know why this happens, because I can’t for the life of me figure out why either scenario makes any sense.

One comment

  1. As an HR Pro, I can tell you these scenarios are both perplexing and frequent.

    Scenario #1: Loosing an employee because company won’t adjust salary to market –
    While on the surface, this doesn’t make sense, some companies adhere to a pay strategy which is a little lower than market because they also offer other benefits and a culture that balances out the overall package when compared to the market. If the package is designed strategically and measured correctly, it can be very effective and the risk of losing key employees is reduced. However, like any strategy, it is also not without risks, and in a strong market where qualified candidates are at a premium, there is the chance that the events you describe can occur.

    The other, more frequent explanation, is that company’s focus on these situations more narrowly, concerned that if one employee complains about being under paid and receives an adjustment, other employees will follow suit and creating an unwanted precedence. In this scenario they are not likely to be paying enough (if any) attention to what’s going on in the market and can loose badly, like in the story you described.

    Scenario #2: Loosing the best candidate who made much less at their last company –
    Honestly, companies do try to get off as cheaply as they can sometimes and, frankly, they set themselves up for a lose-lose all the way around. In this scenario, the company was gambling that Mary would be happy with the $10K increase, even thought it was still $20K below market. If Mary;
    a) accepts the job knowing that she’s again being paid below market, the company is starting the relationship with an employee who feels cheated.
    b) counters the offer and gets her $80K, she will likely take the job and, overtime may come to love the company and allow the feelings in a) to fade. However, she will remember that the company didn’t treat her fairly once, and who’s to say it won’t happen again.
    c) doesn’t take the job, Scenario #2 plays out as described.

    I can’t think of a scenario where the company wins. A smart company doesn’t give away salary just to make employee’s happy, but makes strategic business decisions to maximize employee engagement and company reputation. They will listen to the sound advice of good HR business professionals and the recruiting firm related to the market, the candidate, and the potential risks of paying less than market.

    Beth Turner-Graziano is a senior People (HR) and Business Operations Professional creating calm from chaos so people can thrive at work and have fun! She collaboratively executes change and cost reduction by coordinating business functions to align employee efforts and teamwork with productivity and the strategic business objectives of the organization.

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