Compensation is one of the most important topics you’ll discuss with your candidates in the hiring process. It’s important to spend some time thinking about how you will choose to present this information and frame the topic of salary and other types of compensation.
In this playbook, we’ll look at why positioning compensation is so important, and talk through some of the things you should be doing in order to present and negotiate compensation plans in the most successful way.
Why positioning compensation is so important
- It’s incredibly important for candidates. Let’s face it — money is the primary reason most of us go to work. Compensation is a major factor when choosing a job and in job retention, and may be make-or-break.
- The way you frame compensation can make a big difference. For example, simply telling a candidate what you’re prepared to pay misses out on factors like bonuses, non-cash compensation, and opportunities for progression and salary increase.
- Being open and transparent about compensation programs opens up a dialogue with your candidates and creates a more rewarding hiring experience for everyone involved.
How to position compensation to your candidates
Plan compensation in advance
For any conversation about compensation to be successful, it’s crucial to plan in advance how much you’re prepared to offer your candidates. Usually there is no hard figure — it’s common to have a range for each new position and the offer amount will depend on a number of factors like experience, competencies, and culture fit. Job market data on other companies can be a good guide here.
Here’s why it’s so important to have a figure in mind before you begin the hiring process:
- It allows you to be much clearer with your candidate from the moment the discussion around compensation begins.
- It avoids misleading candidates by suggesting that you might be able to pay more than planned.
- It helps you plan for unexpected circumstances — for example, meeting a candidate who is perfect in every way but is asking for a little higher than usual in terms of salary.
Be honest and communicate
Honesty and transparency are important throughout the hiring process, and staff compensation is one area where this matters especially. You should be clear about things like how much you’re prepared to pay, how compensation can change over time, and when you’re preparing an offer. Invite questions from the candidate and try to give complete answers where possible.
Adding a salary range from the very beginning — in the job description itself — can be helpful. Candidates often appreciate transparency and it helps minimize bias. In fact, some research by SMART Recruit Online has found that job ads get more than 30% more applicants when they list a salary range in the position description.
On the other hand, some applicants may be deterred if they feel like negotiation isn’t an option, and simply listing a starting salary ignores other aspects like benefits and non-cash compensation. It can also cause issues with people in existing positions if they find that new employees are being paid more for similar roles.
Ask the candidate what kind of salary they expect
It’s a good idea to ask your candidate what kind of pay range they are expecting, or would be prepared to accept. This allows you to establish how realistic their expectations are and whether they fit within your planned range. You can then position your compensation offer confidently and tie it back to your candidate’s answer to this question.
Always mention any non-cash compensation
A cash salary isn’t the only way to pay your employees. There are many other options, such as Restricted Stock Units (RSUs). These are shares in the company which are held for a certain amount of time before the employee can sell them, and can result in considerable tax-free gains.
RSUs are an attractive form of compensation for many candidates, so if you offer them it’s important to mention this additional information when you position your compensation. RSUs and similar benefits can be the deciding factor when a candidate is torn between staff positions at different companies, and can make up for a slightly lower base salary in some cases.
Not all benefits are related to money, of course. It’s important to emphasize other perks, too, such as:
- Shorter working weeks
- More vacation time (or unlimited time off)
- Remote or hybrid working opportunities
- Flexible schedules
- Maternity leave
All of the above can be extremely important to candidates and may make up for a lower base pay in many cases.
Have a lightweight process in place
One of the best ways to approach compensation is to keep things as formulaic as possible across your company. This is especially true for companies who are starting to hire larger numbers of people and finding that recruiting is an increasingly large time commitment for them.
Having a compensation process in place with rough templates for compensation and negotiation guidelines can make things much easier and less stressful for everyone involved in hiring. It can also minimize bias and ensure equity across employees.
Positioning compensation for remote candidates
In a world where remote work is becoming more and more common, it’s worth taking some time to look at how compensation works for overseas hires. Often, your remote hires will be working in an entirely different region of the world with very different living costs to where you are based. How can you ensure you pay them equitably?
You can choose to pay according to labor markets — adjusting your compensation offer to match the market rate in your candidate’s region — or you could choose to prioritize pay equity and pay the same salary to all your hires, regardless of where they’re located.
There are pros and cons to each. One potential challenge with the first option is anticipating when people will move to a new area — will you make salary adjustments every time they change location? Many companies are now opting to pay all employees the same to avoid challenges like this.
It’s also important to consider fairness. If you’re paying someone significantly less than another employee to do the same work, based only on their location, is this ethical? More employers are coming to the conclusion that this isn’t in line with DEI values and internal equity.
When it comes to paying your remote hires, there are plenty of tools available to make this easier. Deel and Payoneer and two good options for fast, secure global payments, and another example is Ontop which is packed with features to hire and pay global employees while complying with laws and regulations.
Think about your negotiation policy
Positioning your compensation often involves an element of negotiation. Your candidate may have an ideal salary in mind that you aren’t able to meet, in which case they may be prepared to negotiate to a midpoint.
It’s important to have a plan in place for this so you can deal with the negotiation stage confidently and productively. There are many options here — you may refuse to negotiate at all, you may have a certain amount of leeway with your compensation offers, or you may decide to introduce non-cash compensation at this stage.
One important thing to keep in mind is your other candidates and new hires. If one candidate is able to negotiate a pay increase, will you apply the same figure to all new hires for that same job title?
Use the right tools
Recruiters today have a vast arsenal of tools they can use to help with positioning compensation. One example is Option Impact, which is free to join and draws on data from thousands of startups to show how a certain compensation package compares with other companies. You can show this to your candidates to be as transparent as possible and help with negotiation.
Another tool is Pave, which has multiple features allowing you to plan, communicate, and benchmark your compensation against the market as a whole.
Reach out by phone, followed by an offer letter
While compensation is typically discussed during the interview, you usually won’t make a final offer until later. The best way to do this is to call the candidate by phone, briefly cover the results of the interview (remembering to focus on positives), and make an offer.
If this part goes well, you’ll typically send a more official letter to confirm the offer and finalize this stage of the hiring process. It’s best to use the same template for almost all new hires here, and it’s wise to have a lawyer look over the letter before you send it.
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