Salary negotiations are the gateway process that will set the tone for new hires' morale, productivity and tenure. Organizations seeking to integrate quality talent must engage a lateral approach with foresight and flexibility. Ensuring optimal results begins with understanding the true costs of hiring a new employee, gathering insights into a candidate's persona and preferences, and skillfully navigating the engagement process.
Evaluate the Costs of Hire
According to the Society for Human Resource Management (SHRM), organizations invest an average of $4,129 to hire a new employee and 42 days to fill an open position. Training magazine notes the average annual cost to train an employee was $814 in 2016 in an average of 43.6 hours. New hires could take up to two years to reach optimum productivity.
The United States Department of Labor's Bureau of Labor Statistics found the average true cost for employees is generally 1.3 times their salaries. Plan to budget approximately $65,000 for a $50,000 employee, which includes benefits like health insurance, sick leave, retirement, and legally required expenditures.
An individual's salary figures are a badge of one's identity and self-worth that directly nourish the urge for recognition. As humans, the urge for recognition is ingrained since birth and is arguably the most powerful urge in life, according to Sigmund Freud. This is evidenced by a statistic from the SHRM: 59 percent of millennial workers have at least one interview just to "explore options" with no intention of leaving their jobs. Among baby boomers, 30 percent did the same just to determine their value in the marketplace.
So, even for employers who may be paying their employees market rate and benefits, be warned: Your employees could at least be shopping around.
Factor in Turnover Costs
The cost of replacing an employee ranges from 20 percent of an employee's salary for midrange salaries ($30,000 - $40,000) to a whopping 213 percent for high-level executives, reports Zane Benefits. The ADP Workplace Vitality Report illustrates that turnover rates fall as salaries rise. The turnover rate averaged 7.1 percent for workers earnings over $75,000 annually from Q12015 to Q12017, and spikes to 57.2 percent for salaries under $20,000. Employee turnover rate averages 45 percent when tenure is under two years.
This accentuates the importance of hiring talent with a high probability of reaching the three-to-five year tenure mark, as attrition rates decline considerably enabling organizations to maximize ROI.
The Hyper-Hopper Dilemma
The tightening job market combined with the nomadic nature of millennials has spawned the "hyper-hopper," employees that routinely switch jobs every one-to-three years. Millennials count for 46 percent of this group followed by unmarried/single people at 33 percent and workers earning under $25,000 at 42 percent.
Employers should evaluate these candidates on a case-by-case basis and determine if it's situational or chronic. Having multiple waitressing jobs to earn money through college is not the same as an accounts' manager that switches firms every 15 months.
Priorities of Today's Job Seeker
The 2017 Job Seeker Nation Study by Jobvite uncovered many enlightening insights into today's workforce. Salary was the top reason candidates turned down a job offer for 42 percent of respondents, followed by commute (23 percent) and company culture (13 percent). Health care was the most important benefit for 79 percent of job seekers, followed by 401k retirement plans (60 percent), 401k matching (46 percent), bonuses (39 percent) and parental leave for women (35 percent).
The 2017 Workplace Benefits Report says 67 percent of millennials feel financial stress interferes with their ability to focus and be productive at work. The survey reveals a surprising reliance on employers to take the initiative to cultivate financial health programs, as 92 percent of millennials would participate if employers provided them.
Salary offers should be above market rate to begin negotiations. This conveys the prowess of an organization on the cutting edge that values quality and seeks to establish long-term relationships. Systematically emphasize the benefits that match the priority preferences (e.g. for work-life balance, emphasize the remote/home-work policy for two-year tenured employees). Be sure to have a financial wellness program in place that can be promoted to illustrate a culture that embodies real-life concerns that exist outside of the workplace.
If salary needs override benefits, then have the flexibility to offset some benefits for a boost in salary. For example, cutting a two-week vacation to one-week can free up $1,344 in additional gross pay on a $50,000 salary. If the candidate doesn't require health insurance due to overlapping spousal coverage, it can free up $5,200 in salary. The willingness to compromise and the flexibility to implement transparent solutions not only nourishes the urge for recognition but also inspires reciprocity, commitment and loyalty. This nourishes the bottom line.
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