What to Pay a New Employee
Jan 19, 1998
These are the good old days for the A/E/P and environmental consulting business. Times are good. Firms are growing. Employment offers are going out weekly, daily, and in some cases, hourly. But did you ever stop to think about how hard it is to draft these offers?? We have all kinds of difficulty with this subject. Here are a few of my thoughts:
Employed job candidates expect better offers than unemployed ones. The job candidate who is currently employed simply has more to risk from making a bad decision than does the unemployed job seeker. There’s a good job in hand. Ditto for recruited candidates— they expect a better offer than someone who sends you a resume. They know they are desirable— you sought them out. And don’t forget it.
Ten percent is the minimum base salary pay increase most employed job candidates will accept. And this is for a local job opportunity, one that does not require the candidate to uproot his family and relocate. In those cases (relocations), we have found that you will typically have to give a 15% or even 20% increase in order to get the candidate to accept.
Cost of living is a non-issue, unless the candidate is moving from a low cost-of-living area to a higher one. In these cases, your offer may need to be greater than a 15% or 20% base pay increase. No one wants to step back in terms of their base pay, even if their money goes a lot farther in the new place. If, on the other hand, the employee is going from a cheap cost of living area to an expensive one (let’s say, Indianapolis to Orange County, California), get ready to pay all of the difference plus an additional 10-15% increase.
If you aren’t happy with the other ______s in your firm, face the fact that you might have to pay more than you are paying the others to get a better one. We see this over and over with firms in this industry. They can’t hire who they want because what they pay their existing staff is the cap.
Make the offer in person or by phone. Confirm it immediately in writing. The worst thing you can do is send someone a job offer in the mail, without calling them. It’s so impersonal. You might as well say, “I don’t think that much of you, but if you want to work with us for a while, I guess that would be O.K.” If, on the other hand, you call the candidate first, then send the written offer, you are much better off.
Bonuses don’t mean much to a candidate making a decision on whether or not to join your firm. For example, Company A may pay high salaries and little or no bonus. Company B, on the other hand, pays lower salaries but big bonuses. The same employee would most likely make more money at year’s end if they worked for Company B than if they worked at Company A. But guess who has an easier time hiring? You guessed it— Company A.
Going from paid overtime to no paid overtime may be a big hurdle. If you are hiring someone who is paid overtime and you don’t pay it, here’s how to deal with it. Take about 70% of the total amount of overtime pay the candidate says he or she made last year and add it to their current base salary before figuring out what the appropriate percentage increase is that you will have to offer. For example, a candidate who earned base pay of $50K, and annual overtime pay of $10K, should be considered the same as someone who makes a $57K straight salary without O.T. You would then add the minimum 10% increase for a local move and come up with an offer of $57K + $5.7K, or $62.7K.
Health insurance cost is a real issue. If you plan to make the employee contribute more than they are currently paying for either their own insurance or their family coverage, add this to your offer.
Company vehicles are critical. This is a huge benefit. If you are trying to hire someone away from where they work now, and their employer provides them with a vehicle for business and personal use, don’t underestimate the worth of that vehicle. I find it’s worth between $600 and $1,000 per month, by the time you factor in the lease payment, insurance, gas, registration, taxes, repairs, maintenance, and so on. And this is paid largely with “before-tax” dollars. Some firms think a $400-per-month car allowance is the same thing, but it’s not. Add the cost of the vehicle to your offer.
Don’t try to hire people as cheap as you can. Some companies never offer a nickel more than they think it will take to hire someone, then negotiate everything with the candidate. I don’t like this. It sets a bad tone for the entire relationship. In fact, I have the same philosophy about employment offers as I have about selling or buying anything. Make a fair offer, but be prepared to walk. That’s it.
All-in-all, it’s not easy to hire right now. But if more than 20-25% of the employment offers you make are turned down, you really ought to take a look at those offers. On the other hand, if your gut tells you that your number one candidate for that super-tough-to-fill job is a game player who wants to get everything they can from you, listen to it. Some people are selfish, greedy, and unrealistic. Better to find that out now than after they’re on-board!
Originally published 1/19/1998
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.