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Andrey Popov | iStock

Research05.20.14

Higher Starting Salaries Help Employers and Employees

Offering a starting salary of two to five percent above what is typical for the relevant position can not only lure strong talent toward an open position, but it can actually help secure the long-term results that would justify the high figure.

When competing for talent against larger firms, middle market companies must leverage any advantages they have as they negotiate with their most desired candidates. But while a middle market firm can frequently offer unique benefits to a prospect that include a variety of responsibilities or a degree of autonomy that encourages creativity, there are times when a midsized firm is well served by offering a higher starting salary.

According to compensation research firm PayScaleoffering a starting salary of two to five percent above what is typical for the relevant position can not only lure strong talent toward an open position, but it can actually help secure the long-term results that would justify the high figure. A company can maximize the chances of gaining a strongly favorable return on that higher starting wage by setting tangible goals and expectations for the employee to meet within a given time frame and through other tactics. But which positions or situations might warrant offering a higher-than-average starting salary?

For roles that are customer-facing, offering a higher wage up front can draw applicants of strong quality who might not have considered such a position otherwise. If your hiring manager frames the scope of the job in the right terms, it reinforces the importance of the role to the financial success of the firm in conjunction with the starting salary.

Offering a higher starting salary is a good alternative to pay-for-performance systems, especially when it comes to customer-facing positions. Pay-for-performance systems can lead to what is known as “system thinking” — behaviors that help the employee reach their short-term goals for additional pay but which actually hurt larger objectives of the firm such as customer satisfaction and loyalty. A higher starting wage can cause productivity levels to remain more even over time, which results in more consistent customer service, more repeat business, and more referrals.

There are other considerations for using a higher base pay to lure more productive personnel:

  • If your firm has an open position that will lead to lost revenue or higher costs if not filled quickly
  • If there is a scarcity of quality applicants for a specialized position
  • If the present salaries of many applicants for the position are too close to what your firm is offering

Christine Mackey-Ross, managing partner at Witt/Kieffer, a St. Louis-based executive search firm working heavily in the health-care field, tells NCMM that “we usually draw a range of applicants for a given position, so knowing that we have flexibility of base compensation in our back pocket allows us to introduce that at the right moment if we are attracted to someone in the high end of the talent range.”

“There are certain times when, either strategically or from a market perspective, you end up needing some more money than you wanted to use for a position,” adds Mackey-Ross. “Sometimes your expectations lag what the market is actually doing, and senior managers should have the ability to say, ‘This is a critically strategic hire for a number of reasons, so I am going to pay an increment above the average to get the right person.’ ”

To get the most value for doing this, hiring managers can negotiate certain conditions into the job offer. First, the agreed-upon starting wage can remain in place for, say, the first eighteen months rather than the first twelve, followed by a performance review that assesses whether certain bottom-line goals or objectives specified at the time of hiring were met. “We’ll say, ‘We are willing to come up a sizable amount because we really think you’re a great fit — but you have to produce in a way that justifies that number,” says Mackey-Ross. “That would motivate a good candidate to do the job in a way that delivers the most return for the company.”

The result of higher starting pay, plus clear communication of a position’s importance, is threefold:

  • It motivates desirable prospects
  • It demonstrates clearly how a new hire’s performance is tied to your company’s profitability, which makes for a more knowledgeable employee at the start and a more loyal employee over time
  • It reduces the need for a pay-for-performance system involving commissions or bonuses

Furthermore, HR departments should be armed and ready to be flexible with base pay while being proactive in observing talent at competitors’ firms, as well as at supplier and customer firms. Why? Because some people who are not actively looking to make a move can still be tempted to consider an open position at your firm if the salary is at the top end of the range for that position. Attracting talent from a competitor or an industry-related firm also increases the chances of your firm gaining tangible value more quickly from such a hire.

The tactic of advertising a potentially higher base salary up front may not be the best strategy, particularly for non-customer-facing roles, as well as mid-level managerial and executive-level positions. In situations where the enhanced starting-wage offer to an outstanding candidate does not reach a threshold of five percent above the average, it becomes even more important for hiring managers to emphasize the total cash value of other forms of compensation, such as bonuses and pay-for-performance structures, vacation time, and health and retirement benefits.

Attracting talent does not always have to revolve around a salary number. Hiring managers at middle market firms should be ready to persuade a desirable candidate with a detailed plan outlining the candidate’s likely path of long-term success and career growth at the firm. “People want to work where they feel welcomed and valued, and that does not have to be solely in terms of formal compensation,” says Mackey-Ross. “If the candidate sees that you’ve thought out their role in the firm and potential future roles based on their particular abilities, then even a slightly higher starting salary is a bonus in their eyes.”

This post originally appeared on the Middle Market Center 

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