Budgeting the Salary Range
What should the salary range be? You have likely heard the term ‘market competitive’ salary. What does it mean to make a market competitive offer? In HR parlance the phrase is connected to the concept of ‘P50’ (the 50th percentile mark, the amount that half of survey respondents say they make less than). Paying more than the going ‘market rate’ is unwise and contributes, so the thinking goes, to unnecessary salary inflation.
To be clear, we agree 100% with the principle supporting this thinking: don’t overpay. It’s worth being patient and working to generate good alternatives when faced with the option of overpaying for talent.
But there’s sometimes confusion about when it’s appropriate to pay an average amount - for what will likely be an average level of talent - and when there’s advantage in paying more for what is demonstrably better talent. How to set expectations with your CFO and HR team?
To investigate this, at the end of several recent recruiting engagements we have asked our client:
What do you wish you had known at the start of the search?
A surprising proportion of leaders said that the reported salary levels available in the standard databases - for independent schools either national in scope like DASL (by NAIS) or regional (AISNE, etc.) - leave them thinking that the investment required to secure the level of leadership talent they are looking for is lower than it ends up truly being. Why is that?
It’s for a number of reasons, but when a retained search arrangement is required, that means it’s already a high-stakes situation, and finding someone to join right at the midpoint salary of every institution in your region generally won’t suffice for what you need. Yes, there may be complications in finding relevant in-market comparable schools and roles, but your recruiter can do that for you. And if you need an in-depth salary benchmarking exercise across the organization, a specialty outfit like Mission & Data is worth exploring.
The main misconception though is: a salary level that is reported in a survey - which reflects what someone makes right now in their current job - does not necessarily answer the right question for you. You are less interested in what it will take to keep someone in their current job. When recruiting, you want to know: What will it take for them to switch?
“You are less interested in what it will take to keep someone in their current job. You want to know: What will it take for them to switch?”
Take the candidate perspective: candidates are often considering both their career progression, and their risk in switching.
First: career progression. Have you ever changed jobs for a lower pay rate? Why? Your answer speaks to your career progression. The high-flyers you want to talk with for leadership roles at your school are not looking to take up space at a desk. They want to make things happen. Carrying more responsibility and delivering more value are reasonably rewarded with more pay, within the business model constraints in the sector. If it’s clear that one element is going to be missing - either more pay, more responsibility, or more opportunity to create value - that means you likely won’t have a chance to speak with the most highly desirable candidates.
The second element, risk, is about a candidate’s relative lack of visibility into your organization. Surprises are unwelcome for candidates and hiring managers alike, and they exist for nearly every job. Most of the time they are expected as part of a transition, but when the new employee experience turns into “I didn’t sign up for this” then it is bad for everyone.
Know your competition. Not all candidates are comparing you against your peers: you are competing instead with their current (successful) place of work. A professional’s effectiveness depends in part on the relationships, systems, and competencies they have developed over time where they are. Recreating those assets is hard work, and keeping them unchanged by staying at their current job is worth something. People are reasonably willing to be paid a bit less to keep the convenience of not starting from zero when they are mostly happy where they are.
One weakness of using standard benchmarks is that it ignores this relative unwillingness to switch, other things being equal. But independent of what is ‘standard’, the best candidates will understand their value to your organization. How will you signal that you are prepared to invest in their success in the role?
Your advantage comes from investing the time to deeply understand the unique value a top candidate will bring, and creating the budget flexibility to land your preferred candidate and retain them into the future.
More to explore
Zoë B. Cullen, Shengwu Li, Ricardo Perez-Truglia, Annemarie Schaefer, and Brent Weiss. Why your Organization Should Use Salary Benchmarking Harvard Business Review Magazine, October 10, 2023. “In a growing number of states and countries, employers are not allowed to ask job candidates’ salary history or even their salary expectations. That means employers must find new ways to determine appropriate compensation. A key solution lies in salary benchmarking — using aggregated market data to establish competitive pay rates. Recent research in collaboration with a leading U.S. payroll processing company revealed that access to robust benchmarking tools doubled the probability of firms setting the “right” salary. Data sources vary from government-released data to crowdsourced information on platforms like Glassdoor. Despite the availability of various tools, ensuring that salary decisions align with market trends is crucial, not just for compliance but also for retaining talent.”