Posts Tagged ‘compensation’

Why Salary Calculators Don’t Compute

Monday, June 5th, 2017

If you are an executive contemplating a job change with a physical move, the odds are you have consulted an on-line salary calculator tool, hoping it will give you guidance as to the cost-of -living differential in various parts of the country.  In very plain terms, these calculators can be misleading, and could cause you to reject a great job you might want.  Even in great offers, employers almost never offer the kinds of raises that these calculators imply you might need.

Example:  You are a defense executive living and working in Huntsville, AL, making $200K per year.  You have an offer to come to Los Angeles for a new position, with compensation of $240K per year, a 20% increase, and your relo costs will be covered.  Not a bad offer in this economy.   You go to CNN Money’s Salary calculator, which shows you should be making $284K.  You double check at Salary.com, and it tells you that you need $299K to break even.  Are these numbers legit?  Should you take them seriously?  Let’s take a closer look.

Start with taxes.  Your combined Federal, State, FICA and Medicare take 40% off your taxable pay.  Let’s say that you put away 6% in your 401K, and you have decent deductions, so your net effective total tax rate is closer to 30%.  Minus the 401K and taxes, your current disposable income is $128K.  But some of that goes to fairly fixed items that aren’t much affected by geography.

Food, clothing, vacations, savings, college tuition, doctors, car payments and golf all remain about the same from region to region.  What elements really are affected by location?  Housing, fuel, some taxes go up.  You must take a look at the individual components of YOUR personal cost of living to see what goes up.  In the example cited, an executive moving from Alabama to California might expect to double their housing costs, and will have about a 4-5% increase in state income taxes.  The rest, fuel costs, sales taxes, etc. might be a bit higher, but not significantly (as a percentage of salary).  Our estimate of the actual geographical increase in cost in this example is about $25-30K, not the $84-99K you might see in an on-line calculator.  So the offer at $240K is a more than break even, and definitely not a loss in income.

The key point here is that salary differential calculators only apply to a portion of your income that goes to basic costs – not to your entire income.  Be realistic in using tools like on-line calculators.  Create a spreadsheet and look at the actual costs that will change for you, and use that scenario to make a decision.  Know that salary calculators don’t apply as much to upper income people.  Don’t be misled into making a decision that doesn’t reflect your personal situation.

Another thing to keep in mind:  Future employers will look at your comp as a baseline for your next increase.  4-5 years from now, if you later move back to a lower cost area, your next employer will be looking at $250-260K+ in comp, not $210K (what you’d be getting if you stayed at current job).  Although it is true that most employers don’t increase comp upwards to allow for geography in executive hires, it is even more true that employers almost never adjust executive comp down to reflect a move to lower cost areas, so your new comp will be based on the increase you took when you made the change.  Generally speaking, taking a raise now increases your comp for the rest of your career.

We believe that the choice to make a change should be based on fit.  If the new position represents a clearly superior situation – better company, better role, new challenges, better boss, brighter prospects for the future, these are the strongest determining factors.   Be careful not to rule out good opportunities because an on-line calculator led you astray.

The Truth On Why Executives Make Job Changes

Saturday, June 3rd, 2017

We recently conducted a Linked IN poll with the question:  What would motivate you the most (to make a job change)?  As of today, we have 440 responses, and the overwhelming choice is Increased opportunity / company quality (at 39%).  The strong second choice is Increased challenges and responsibility (28%).  So these two choices comprise 67% of the responses.  Trailing in the distance are increased compensation (with only 18% of the vote), benefits (9%), and equity (stock) (6%).

What this says to us is that the companies that make a compelling case that they have a strong value proposition as an employer, and the companies that invest time and thinking in defining clear objectives for people, will have an edge as employers.

Many companies feel that competition for top talent is mostly based on money – and they either fear being unable to compete, or they do the opposite – throw money at people to attract them.  This poll shows that money can be less important if people perceive the quality of the company and the job itself, to be superior.  In fact, over the last few years, we’ve seen top candidates, usually employed and not actively looking for something new, accept positions for little or no increase in pay, when they perceive a clearly superior environment, and they get excited about the challenges.

Check the poll today to see if the results have changed, and let us know if you have a strong opinion about this.

Employer Insight on Job Offers

Saturday, June 3rd, 2017

There is an old lawyer’s axiom – Never ask a question you don’t already know the answer to. I think this saying also applies to employers extending job offers to management level candidates. I’ve seen too many clients extend offers before they know if the candidate will accept, only to get a turn-down.

Once the offer is extended, the power shifts to the candidate, and often, that is when negotiation begins. The negotiation should be done before the offer is extended. An employer should know whether the offer will be accepted, before they actually give the offer to the candidate. Here is what the employer should know before extending the offer:

  • What other factors will influence acceptance? These could include: benefits, bonus, growth potential, relocation issues, spouse’s job, kids in high school, elderly parents, etc. Dispose of these issues before discussing money, and the money becomes easier to discuss.
  • What are the non-monetary reasons the candidate wants to come to my company, and/or leave his/her current company?
  • What are all the components of the candidate’s current compensation package? Which are important? [Some candidates don’t care about bonuses, and want a higher base; others want the opposite]
  • What amount does the candidate want to work at my company?
  • What is the minimum level at which the candidate will walk away?
  • Would a sign-on bonus (one time payment) substitute for some salary (permanent cost)?

When an employer takes in all the factors and truly understands the candidate’s motivation, then a “test” offer can be given, accompanied by a “trial close.” “If we offered you X, would you accept?” If you get a response “I’d have to think about it”, then you have to discover all the things the candidate would be thinking about, until you get a “yes, I’d accept“. Then the next day, you can extend the offer, and know that you’ll get a yes.

The How-to’s of Employee Retention

Saturday, June 3rd, 2017

My last post was about the importance of keeping your best people, especially in a recession. Today I’ll focus on what motivates an “A” player. These factors need to be in place in order for you to keep your top people loyal. “A” players are motivated to stay with you when they are:

  • Inspired by your vision and leadership – make sure you articulate this clearly and stay positive in your communication.
  • Impressed by your business plan – You do have one, right? A roadmap to success must be part of your plan.
  • Part of a great team tackling a great challenge – an “A” player wants to be surrounded by other high quality teammates, who are operating at optimum performance.
  • Believing in the company’s potential to succeed – would you bet on your chances? Your “A” players can calculate the odds too.
  • In a stable, secure environment – have you been making people feel safe or not so safe in your comments about today’s situation?
  • Able to make a difference, to count – because you have clearly spelled out their objectives and shown them how the achievement of those aligns with corporate goals.
  • Have the right compensation – this is last on the list, because if the factors above are present, compensation becomes less important. The “right” compensation for a key manager includes incentives for their own performance objectives.

Take care of your people, mostly through excellent communication and the right attitude, and I believe they will stay loyal and take care of you!

The Necessity of Consistency in Talent Management

Saturday, June 3rd, 2017

A consistent approach to Human Capital Management is sometimes lacking in large companies, ironically, due to the uniqueness of each leader in the group. For example, the Talent Acquisition Director might believe in a performance based approach to hiring, but perhaps the recruiters are more comfortable with competency-based interviewing. And to compound the inconsistencies, the compensation manager may believe in a unified team approach, or company performance, as the basis for incentive compensation, which then has no tie to either individual performance or even individual competencies.

Individual philosophies in Talent Acquisition / Human Capital Management can serve well to inform the overall policy. However, it is essential that a consensus approach be utilized that makes it clear to each employee how they will be managed, from the moment of their first interview, to goal setting upon hire, evaluation, compensation, etc.

We advocate the performance-based approach, which can be applied to the full spectrum of the talent process. A job description should contain SMART objectives. These objectives can be the basis for recruitment and evaluation. The objectives also form a business plan for the new hire, can be used for evaluation, and can even be quantified for incentive compensation. Each year, this performance-based formula can be applied to generate new goals, which become a new personal business plan, and form new evaluation criteria that can be the basis for performance reviews, compensation, promotion and growth.

Employees appreciate consistency. When the same management theme is applied to all aspects of their employment experience, they will be more motivated and productive.