HOW NOT PAYING MARKET RATES HURTS YOUR COMPANY
Author: Aldin Beslagic Published: Sept 2019
Having worked on both sides, corporate and staffing world, I have hired over 5,000+ and conducted over 10,000+ interviews. I see a lot of employers seeking to hire highly overqualified employees at bottom dollar.
Let’s break it down:
The highly qualified employee was making $100,000 a year. You offer him/her $55,000. Thinking you got a steal of a deal. The potential employee accepts your offer. You think you just saved your company a lot of money because you’ve done that with the recent 50 new hires.
What’s really taking place is that your company is just a temporary stepping stone to provide interim income until they can search out a higher salary position. Once he/she finds a job that pays market rate, they would leave immediately. So, it becomes a revolving door.
The cost to rehire and train a new person will do nothing but keep your company in failure mode. Turnover seems to vary by wage and role of employee. For example, a CAP study found average costs to replace an employee are:
16 % of annual salary for high-turnover, low-paying jobs (earning under $30k a year). For example, the cost to replace a $10/hour retail employee would be $3,328.
20 % of annual salary for mid-range positions (earning $30k to $50k a year). For example, the cost to replace a $40 k manager would be $8,000.
Up to 213 % of annual salary for highly educated executive positions. For example, the cost to replace a $100k CEO is $213,000.
The way you solve this is by being honest and pay the market rate for that position, regardless of the underlying situation. Your new hire will show you dedication and production beyond belief.
People go where they’re appreciated.