Often when I am advising clients on their hiring strategy, I am also asked to help them determine what to pay an individual. I always find it funny that the first question I am asked is, "What does the market pay for X?" While a company certainly needs to be competitive, the first question any company needs to ask is "What can I afford in relation to the expected return on investment?"
Following that, 2 more questions need to be asked:
1.) What is the minimum education and experience needed to get this position off the ground and running?
2.) What is the performance I expect out of the first 90 days?
Then, it's time to ask what is the market paying and fit YOUR expectations into that range.
Here is an example:
I need to run pretty lean right now, but definitely need some administrative help to make sure my vendors get paid and my clients are paying me. In addition to that, I need someone to send the initial teasers to potential clients and follow-up with thank-you's after pitches and finally schedule follow-up meetings with clients who have signed on. This will allow me to focus more on sales and delivery, pitch to more potentials, therefore turning more potentials into clients, and turning more clients into lifers, therefore generating even more revenue. By hiring this person, I would hope to triple revenue because I will have the time to do so.
If I'm currently bringing in $200 a month, by hiring this person I now make $600 a month, I decide I can afford $200 a month. This includes vacation, health and dental benefits and sick benefits. It does not include external training or the work/life balance options or the various creative options I will also offer the person.
Education isn't a factor (but basic skills like use of the Internet, grammar, reading, writing etc. is necessary - however the school, program etc. is not important to me). I need them to somehow prove to me they can take an instruction and follow through. They may not have direct office experience, but they need to know how to use Google and figure out the problem at hand (so if they have a degree and no experience, that would work to). My expectation is that after two weeks, I'm not having to explain myself, they've got it and can run with it. I may not always agree with their way of completing the task, but customer service must always be first. First impressions and follow-up impressions will be something I look for.
If I go to various websites on the web - I can see that the market is paying anywhere between $50 to $350 a month for the same position. I can't go above the $200 mark, so I look for less education and less experience. I do need someone to be smart, and stay for at least 6 months, so instead of paying the bottom, I pay $100 and set performance measures during the first 90 days to get them to the $150 mark. If they don't meet my expectations, they don't have a job, but I also didn't overpay them in relation to my budget either. My benefits package and work/life balance also makes up for the other part of the total salary package - which I don't offer until after the 90 day mark.
And this is how I determine the salary equation. What can I afford vs. the projected return vs. education vs. experience vs. external market. I want to be fair - but I need to do what's right for the business.
http://www.elevatedhr.com/
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