So you just lost an integral part of your team. They were one of the key lynch pins in your operation. When you heard about it – the first thought was how much more you were going to have to pay to replace them. You knew the great deal you had, you thought they would never leave – but they did.
If you are paying someone 10% less than the individuals market rate you are DIGGING A HOLE. The greater the difference is over 10% - the deeper the hole. The deeper the hole, the better the chance they will leave - soon. There are some exceptions to this rule but they are few and far between. Such as, there are some hindrances such as relevant job opportunities in the area for the person and so forth.
The real question is why would you not pay a good to great person the market rate? In most cases I find organizations do pay close to the market rate across the board. There are certain circumstances which create problems such as:
- The truly outstanding person who is up to any challenge
- The good to great employee who has been there forever and “knows everything”
- The great employee who does not “market” himself very well
- The good to great employee who is effectively the Assistant Manager/Director/VP
Obviously, these are the types of people you want to keep.
Most organizations do pay close to the market rate and try to adjust for experience, relevant education or industry experience. However, I have also had the opportunity to know of CEOs who have a compensation philosophy which feeds employee turnover. They want to pay the absolute least amount possible, promise the world and never deliver. After the person quits and is walking out the door – he throws them a $2 an hour raise. In reality they should have been paying them the $2 an hour to begin with.
This not only increases employee turnover, it feeds resentment in your greatest asset, is an undercurrent throughout the recruitment process and employee life cycle. The potential candidate pool will be well aware of the existence of this philosophy and the good to great employees will steer well clear of the organization.
What type of employees would an organization like this end up with?