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Having a clear policy around compensation, levels, and titles can help make sure you are able to attract the right talent for the right reasons. However, you will come across cases where your structure doesn’t quite match candidate expectations. After all, the data you gathered about the market or about the candidate may not be perfect.
While ignoring your structure may lead to arbitrary and unfair decisions, sticking to your policy too rigidly may result in losing out on great candidates. (Some people are OK with this in the long run, based on their specific values and hiring philosophy.) No incentive structure is perfect. So when and how should you make exceptions?
A balanced approach would be for every company to be highly disciplined about how they compensate employees, but allow themselves a certain degree of flexibility to exercise in certain situations. These guidelines may be useful:
If a candidate is going to bring disproportionate value to your company, it’s fair to compensate them disproportionately. This is especially true in the early stages of a company or for highly specialized roles with very scarce talent. Sometimes, a single hire can dramatically change the trajectory of a company either directly, by bringing a unique set of skills; or indirectly, by showing credibility to investors, candidates, and customers.
When compensating disproportionately, it’s worth considering skewing toward equity over cash. This will help maintain long-term alignment and minimize risk.
danger Don’t make exceptions for candidates who are simply good negotiators, have astronomical competing offers, or were overpaid in their last role. (Note that while this information may surface, it is illegal to ask candidates about past compensation in several states, including California; the “salary history” bans are an effort to combat pay disparity and discrimination.) These types of exceptions aren’t fair to your existing team. It’s also important to know that some types of candidates will be less or more likely to feel empowered and entitled to negotiate. For instance, young women are a lot less likely to negotiate than men of any age, because people treat them differently in negotiations, not because they “lack confidence.”
If you find that you are frequently making exceptions, you might consider revising your existing structure and applying changes both to future candidates and to your existing team. If you had to rehire your existing team, what would their compensation look like?
caution Even though experts recommend having discipline and structure around compensation, many companies don’t run their hiring this way. Certain large software companies are notorious for making notable exceptions for candidates with competing offers (especially if those offers are from competitors), and “bidding wars” can ensue. On the other hand, high-growth startups that have substantial funding and a “grow at all costs” mentality can be very undisciplined about the offers they extend. It’s helpful to know that you might end up faced with these dynamics. The companies that navigate this the most successfully—both for themselves and with their candidates—have a combination of structure, awareness around unconscious bias, and integrity in their decision-making processes.
When to Bring up Compensation
Compensation can be a tricky subject. It’s uncomfortable for a lot of people, and there might be laws that govern how you can have that conversation (for example, in California and a number of other cities and states it is illegal to ask a candidate what their current compensation is, and you are legally required to disclose a salary range for a position if they ask you). However, compensation is an important criterion for all parties, and it has to be discussed—but when?
Bringing up the issue of compensation too early can be a distraction for you and the candidate, pulling attention away from more important issues. That said, there’s a risk that if you don’t broach the subject early, you can both waste a lot of time working through the rest of the process only to realize later that what you can pay is incompatible with what the candidate needs. For example, if a candidate is moving from a large, well-paying company to a startup where cash compensation might be much lower, it’s important to bring this up early to avoid surprises later. And of course, even if your plan is to delay that conversation, it’s not uncommon for a candidate to bring it up before you’d planned to.
Furthermore, some companies run a candidate through their process, extend an offer, and have the candidate reject the offer based primarily on compensation, without either party having ever brought up the subject. Sometimes the company isn’t even aware that compensation was the problem; often, this is because both parties are uncomfortable discussing it.
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