The key takeaway is that Google search algorithms have a significant impact on the results you will receive from job postings, the visitors to job boards and LinkedIn are increasingly on mobile devices, and millions of job seekers are rating employers. All three factors require employers to adapt their recruiting strategies, or risk being left behind.

Fair warning, the purpose of the presentation was to highlight the trends, not to prescribe solutions, so there’s no easy answer to be found in the last slide.

The recruiter is trying to build up the perceived value of the difficult work of reaching people who do not answer ads, and diminish the value of what comes easily (people who answer ads). But c’mon, the phrase just sounds ridiculous. Of course good people answer job ads.

Recruiters don’t actually believe that the very act of answering a job ad degrades a candidate’s skills in some way, while remaining unresponsive to advertising makes them better at their job. Obviously someone’s ability to perform on the job is wholly unrelated to how you recruited them. In our executive search work, we’ve found good people who answered job ads, social media outreach, cold calls, and emails. We haven’t tried it, but I’d bet that we could walk around wearing sandwich boards and some good people would respond (if the messaging on the sign was good enough).

So what’s the real problem with job advertising?

The problem is that good people rarely respond in large enough numbers to teach you anything useful about your job market. And there’s the rub. We’ve looked very closely at the engagement rate of good people to job advertising, and in our experience, it hovers around 1-3% of the total candidate pool. Don’t get me wrong; there are some fine people in that little number. (But I should also mention that our ratio of “on target” to “off target” resumes is about 1:30, so it takes a bit of reading to find the good ones.)

But if you want to hire a top performer (by definition, one of the top 10% of people with that skill in the market) and your job advertising only engages 1-3% of the best people in the market, how do you know when the candidate sitting in front of you is one of the best? All you really know is that they are one of the best people who happened to see your ad. You simply lack the context to know how they compare to their peer group.

How do you decide whether or not to hire them?

And that’s the most vexing conundrum of staffing for most hiring managers. The hiring manager always wants to hire one of the best possible people in the job market, but lacks the context to understand if the candidate sitting in front of him is one of the best. It’s vexing because in order to properly evaluate the handful of good people who answered your job ad, you need to understand the entire job market. But only a small fraction of the entire job market will ever answer your job ad, and, by definition, only a tenth of them are in the top ten percent. Without a sophisticated candidate research capability, you are flying blind.

While hiring managers can easily define the skills they would like to see in a position, they rarely know how the job they defined compares to the skills of the people in their job market. Supply and demand for skills varies wildly by position, by city, and by time-frame. It’s fairly common to define a job in a way that makes it unfillable, or undesirable, or that requires someone you cannot possibly afford. How will your recruiting process catch the error?

Can your recruiting process answer questions like these?

• How many people in Washington work in finance for a nonprofit with a budget over $50 million?
• What do their salaries and career paths look like?
• How many would be interested in the position you have open?
• How do their titles compare to your internal title?
• How will small changes in your title, or responsibilities, or experience requirements change your recruiting outcomes?

Without this data, you can’t make an intelligent comparison between your open job and the supply of people. And you cannot get to the next level questions like:

• How does your job stack up against other places your candidate might want to work?
• How does your compensation compare to their other options?
• Should you hire the person in front of you or hold out for someone better?

And that’s the real problem with job advertising, social recruiting, or any recruiting approach that only yields a few good people. You may be missing the people you really want to reach, and you may get a few good people, but you have no idea what to do with them.

So what’s the downside to interviewing the first few qualified people who responded to your recruiting efforts? If it only takes one great person to fill the job, why wait around for more candidates to emerge? What if the good people get other jobs while you are waiting? 

Occasionally, it does make sense to interview the first few people who apply. But most of the time, you actually slow down your search by interviewing too soon. Unless you are incredibly familiar with the job you are filling, waiting until you have developed a full slate of five to eight candidates almost always results in a  better hiring decision. (To be clear, I’m talking about waiting 3 or 4 weeks, not 3 or 4 months.)

So how do you know when to jump, and when to wait? We’ve put a lot of thought into this question, and here is our decision process (click to see the larger view):

For example: If you routinely hire for Network Engineers, and currently have several on staff, then you have an excellent basis for comparison when you interview another Network Engineer. Because you have recently interviewed dozens of these candidates, you can instantly recognize a good one when you meet them. And you know what to pay them. No need to wait for a slate here.

But if you have not recently interviewed any Network Engineers, you don’t really have a basis for comparison. You need to educate yourself before you can make a fully informed hiring decision. You are unfamiliar with the job market, no matter how deeply familiar you are with the job and skills required. You need to see firsthand how people from various backgrounds would bring different capabilities to the job. You need to see how compensation for the role varies by skill level. In short, the early candidates might be fine – but without a full slate of candidates to choose from, you are not ready to properly evaluate them, or to understand how your job compares to their other options.

• More than any other person in an organization except for the CEO, the top HR executive impacts how much courage managers will show in hiring and performance management.
• HR has an enormous impact on your budget. In many organizations, the lion’s share of the annual budget is spent on salary and benefits, and HR typically determines how strategically that money is allocated. (Good luck attracting great people when you offer lousy benefits and no clear way of measuring or rewarding performance).
• HR has a huge impact on results. HR maps out the strategies that attract, retain, and inspire the staff to help you achieve your mission. (Good luck trying to achieve great things without great people. Even if you hired some great people, ineffective or bad HR strategies could end up demoralizing them just before you need their best work).
• And when things really go sideways, HR helps you evaluate the legal risk of ushering your hiring mistakes out the door, before they cause even more damage. (Or do you enjoy making chit-chat with your former employees’ lawyers?)

But it’s a precarious business to be an effective senior HR executive. In a cruel twist of fate, doing the HR job well requires putting their own job at risk repeatedly, because it’s often their responsibility to speak the uncomfortable truths to power. Great HR people make the CEO less comfortable, not more comfortable. Consider how:

• When you feel like your organization is already spending too much on salary and benefits, a top HR executive will tell you that your compensation still isn’t competitive, and you need to spend more if you want to hire and retain the best people.
• When you think you’ve communicated enough about your performance expectations, great HR tells you the team is still fuzzy on the details and you need to do more for them to understand you clearly.
• When you would rather dodge addressing a situation with a problem employee, great HR won’t let you shirk your responsibility, and keeps the issue on your agenda until you resolve it.
• When you want to blow up in righteous indignation at someone’s failure, great HR instead cools you down and points out that there are environmental factors that set them up to fail.
• When you make the workplace less productive by occasionally micromanaging, undercutting your executives, or not acknowledging high performance, great HR points out where and how you could improve.

Good ol’ HR, always the life of the party. (Mommas don’t let your babies grow up to be cowboys HR pros.)

If you are a CEO and your top HR pro does not make you uncomfortable, consider that you might have the wrong person for the job. Or consider that you may actually have the right person. But instead of letting them speak truth to power, you instead make it abundantly clear that they shouldn’t bring you tough information. Either way has the potential to put everything you worked for at risk; your pay practices, performance management, and maybe even legal compliance could be sorely lacking. You need to encourage HR to bring you the bad news. Take a Dramamine if you need to, because it will rock the boat.

But if you ever want to hear the truth, don’t make it your policy to shoot the messenger.

But what if, “Good people know good people” was more untrue than true? What if it’s really a “tip of the iceberg” situation, where the visible part of the statement that’s true is so much smaller than all the hidden assumptions underneath the statement that are not true?

The visible part is easy. We all have evidence to support it. When you hire someone you know, it can be less risky than hiring a stranger. Whether you worked in the same organization or just volunteered with someone, you probably know more about them than you would learn in a typical interview. So yes, it’s true. Good people do know good people. 

But it’s not that simple. There’s quite a bit missing from the argument that, “Good people know good people.” The frame of reference is far too small. The five simple words overlook the fact that:

• Good people never know ALL the good people.
• And of the people they do know, they rarely remember or recommend ALL the people who should be considered.
• Good people aren’t necessarily good at matching people to jobs
• And they don’t have ANY idea how the people they know compare to the people they don’t know.

So no matter how well connected anyone is, they only ever meet a fraction of the potential candidates for any particular open job. And we all have preferences and biases about the kinds of people we might recommend. And none of us have any idea about the people we’ve never met. So whenever I ask anyone, “Who do you know who might be great for this job?” their answer is always limited by:

• Their desire to take any time to help me with my question.
• The size of their circle of friends.
• Who they actually remember from their circle of friends.
• The depth of what they remember about someone they worked with years ago.
• The context of the work environment in which they observed someone else’s work.
• Their understanding of your open job and their ability to discern who might be a fit
• The kind of people they happen to enjoy working with.

When you add up all those unspoken limitations, the limitations are bigger than the true part. The biggest part of the iceberg is invisible.

When you look at the larger context, “Good people are an unreliable way to find other good people” is a more accurate statement.

So, to keep from fooling yourself, if you want to keep playing the “Who do you know?” game, just give voice to the limitations of it. To that end, please allow me to offer you a more complete question:

“If you don’t mind me interrupting you, and you are willing to spend time with me on this question, who have you ever worked with for long enough that you could actually comprehend the totality of their skills, and have you taken the time to carefully evaluate their ability to thrive in a completely different context such as the one I am proposing to you now? And precisely what are your qualifications to evaluate someone’s ability to succeed in a different work environment? Have you left anyone out from the list of people you are recommending, and is that because of a personal preference of yours that you may not even be aware of? Do you know if I share that personal preference? Have you ever considered just how many people you do not know? And, if you are even qualified to judge them, please evaluate the abilities of the person you are recommending relative to the population of other qualified people?”

But if you are a recruiter, and if you are talking to a stranger, I suppose that question could be a bit more uncomfortable to ask.

• “I’ve tried to make things work, but my VP of HR is just not delivering the results I need.”
• “My Communications Manager just won’t step up to the plate. We seem to only react to things without any strategy.”
• “The world changed around us, but Finance is doing the same things we did ten years ago. I’m getting no useful information and feel like I am constantly dragged into the weeds. We need to rethink what we are currently doing, but frankly I’m more worried about all the problems we are not even thinking about yet.”
• “Our IT department is a real bottle neck. We want and need streamlined processes, better information sharing, and improved productivity. But all we get are surprise expenses, empty promises, and long delays. Even simple requests seem to get buried in obfuscation and complexity.”
• “Our Chief Marketing Officer is not doing anything that drives revenue. We’ve spent money to upgrade our social media presence, revamp our website, and conduct extensive customer surveys. But our revenue is still flat-lined.”

Some of these concerns might sound like people problems. But twenty years of experience as an executive recruiter has taught me that what looks like a people problem is often a situation problem. An occasional bad hire is nearly unavoidable. But if you churn through executives every few years, your chronic turnover almost certainly runs deeper than just one bad egg. When your department or executive team has a pattern of failure, it’s likely that your work environment sets people up for failure (however unintentionally).

The First Law of Holes is, “If you find yourself in a hole, stop digging.” In the face of chronic turnover, don’t hire anyone new until you fix the underlying issues. Chronic turnover problems won’t be solved by blaming individual employees and then going out to immediately hire more. As Einstein noted, “We cannot solve our problems with the same thinking we used when we created them.” Instead, chronic turnover is best solved by looking beyond the individual people and exploring any issues in the work environment. Before you move forward with another round of hiring, step back and look at your own role in these seven common causes of employee failure.

1)      Are you using an outdated business strategy? Maybe the way you’ve always done things no longer works. Nothing runs on autopilot forever. If it’s the wrong task for the times, it won’t matter who you assign to do it — they will fail. The skills required for success ten years ago are not nearly enough to achieve success today. Almost every job has an increased demand for results, coupled with dramatically higher complexity and ambiguity in the work. You can’t just use old job descriptions and salary budgets to hire new people … but many people still try to.

2)      Maybe the best people are just not that into you. Do you have trouble attracting great people to your open jobs? Or do you interview great people, only to see many of them withdraw from a second or third interview? That’s a signal that you, your job, your organization, or your industry are just not that attractive to the people you want to hire. No one stands in line for an iPhone 3G anymore, even though they did a few years ago. Have you considered that the job market might have changed around you and the best people have better options elsewhere? When was the last time you benchmarked your salaries against the competition? Do you really understand who is available in your job market and who you are competing with to hire them? (Almost nobody does this kind of market research when hiring.)

3)      Are you still placing .22 caliber people in a .357 Magnum job? Growing organizations outgrow people. Your internal positions inevitably become more complex as you grow. So your next HR Manager will face dramatically different challenges than your last one. Just because the last HR Manager was willing to work for $90k does not mean you can use the same salary budget to replace her. When you hire, you need to think about the future, not the past. And if you need a new business strategy (see #1), are you ready to pay a salary premium to hire someone with those skills? Strategy never comes cheap, but far too many managers hope (in vain) to find it in inexpensive candidates.

4)      Are you disappointed with everyone you interview? Perhaps your recruiting team is only considering the people who fit your salary budget, or perhaps your recruiting strategy only reaches the people who respond to job advertising (only about 18% of the total candidate pool responds to recruitment advertising). If you want different recruiting results, you need to align your HR practices with your business strategy.

5)      Do you hire new people to shake things up, only to be disappointed after you hire them? Do you find that your people will not step up to the plate? Do you give new people big audacious goals, then disappear while they get stuck in the thicket of executing? Do you hover at the big picture level, never getting in the weeds with them, making them feel like they are going it alone? Do you ask new people to build consensus with your overworked, understaffed current team, or do you help pave the way? And when it comes to conflict — be honest with yourself — do you reward your team for encouraging healthy debate, or reward them for getting along and not rocking the boat? Change agents need more support than senior leadership usually provides them, and they always cause more chaos than their managers prefer. You can’t say you want to hire change agents and creative thinkers and then not facilitate their ability to foment change.

6)      Do your new employees charge ahead, or freeze like a deer in the headlights? There’s an old saying, “The fish stinks from the head.” Do you share the credit and take the blame? Or vice versa? If your new hires know that they will be blamed for every error, how many risks do you think they will take? Do you swiftly make gutsy judgment calls in the face of uncertainty, or do you expect your subordinates to take those risks instead? If you are always traveling or behind closed doors, is your team forced to guess at what you are thinking? Do new employees have to figure out their mistakes from group emails or other employees? Or do they get honest, direct, and regular feedback?

7)      Do you have a rule for everything? Are your employees trusted to exercise good judgment or do you have a thick set of policies for everyone to follow? Maybe your HR policies were initially designed to mitigate your legal risk, but after years of adding small edicts to your employee handbook, your office now exudes the depressing atmosphere of a police state, repelling the very people you want to attract. Police states are rarely nimble or fun. (And in a sad bit of irony, some employment attorneys suggest that all those oppressive policies might actually increase your legal risk.)

If you find yourself blaming the person who failed in a job, you’re probably looking in the wrong place. You’ll almost never find the solution there.

Before you look at new people, look at yourself. Chronic turnover problems are best solved by looking long and hard at how you might be contributing to the very problem you are asking someone else to solve.

OK, fine, it’s good to have goals.

But if you don’t work in that kind of environment right now, are you sure you know what innovation really looks like … up close and personal? And when you interview an innovator, just what exactly should you look for? And after you hire them, will your office be like the set of Mad Men?   

If you’re looking for someone with a history of serendipitous moments, where the innovation muse whispers brilliance into their ear, the cosmos align, the sun bursts through the fog and birds start chirping, you will be looking for a very long time. As children we all heard the tale of the apple falling on Sir Isaac Newton’s head, causing a supposedly sudden insight into his theory of gravity. But few of us heard what Mr. Newton was doing prior to that famous moment. So does innovation look like blindingly brilliant moments of fruit-inspired inspiration? Or does it look more like the part of the story that happened before the apple fell?

Sorry kids, strokes of genius are really tiny–more like pointillist painting than the broad-brush conversational style used in most executive suites. If you want to hire an innovator, don’t look for a fast-talker with grandiose ideas, they will not go the distance. As Harvard professor Rosabeth Moss Kanter put it, “Everything looks like a failure in the middle. Everyone loves inspiring beginnings and happy endings; it is just the middles that involve hard work.”

Instead of hiring a big talker, seek out someone who can methodically and painstakingly take tiny, unconnected painted dots (ideas) and form them into a bigger (and more interesting) picture. Scott Berkun, author of The Myths of Innovation, calls this the “Myth of Epiphany.” As he puts it, “Epiphany stories project illusions of certainty since they’re always about successful ideas. Epiphanies are a consequence of effort, not just the inspiration for it.”

Other researchers have also concluded that innovation is a far more arduous process than most of us are led to believe. Keith Sawyer describes how one researcher set out to chronicle Eureka! moments only to find that good ideas are actually built upon bit-by-bit.  Peter Sims studied Pixar and the creative process used by world-class architects and comedians. Here is what he said:

“It may take Chris Rock six months to a year to develop one hour of comedy, and he does it by just scribbling ideas down on sheets of paper, going into these clubs unannounced and sitting down in a very relaxed, casual way with the audience, so that they know that, “Hey, this is not Chris Rock in prime time. This is Chris Rock in development mode.” He’ll just start riffing with the audience and he’ll bomb. It will be awkward at times. But what he’s doing is he’s looking for just a little hint as to where a hidden joke might be, and, once he finds that, then he keeps on that idea and keeps iterating, keeps improving, tweaking, until it becomes more and more a joke that he can use in his routine.”

Chris Rock knows many of his joke ideas will bomb. More importantly, he knows that’s completely OK. He revises and edits his material until he arrives at the tightly crafted sets we see on HBO. Breakthrough ideas and innovations are built on foundations of mistakes and dead ends. Innovation is surprisingly methodical, as it emerges over time out of “peripheral” knowledge, or out of seemingly irrelevant ideas.

Even on TV, innovation does not look so easy:

What appears to be an effortless flash of brilliance in this clip did not come out of nowhere (though the timing is fortunate). Prior to the dramatic scene, Don Draper had spent the entire episode scribbling countless pitch ideas onto napkins, only to decide they were all terrible.

So how do you build a more innovative organization? 

First, make sure your team understands what innovation looks like. Share this quiz with your team to start the conversation. Recognize that innovation is thoughtful, deliberate, metric-driven execution. It’s experimenting, learning, and moving forward. It’s working on the right problem, eliminating distractions, and looking for new information that might teach you something, or challenge your assumptions. Innovation is not brainstorming, to be an innovator, you have to ship. You have to put your ideas into the world.

Second, focus on the language you use. Scott Berkun argues that “innovation” is a junk word that you should drop entirely, because there are too many theories about what it means. “Unless you are taking the time to ensure everyone in the room uses these words to mean the same thing it’s jargon – the words fail to convey meaning.” Instead of grandiose language, focus on precise, common language. As Berkun puts it,

“Pretentious words like gamechanging, breakthrough, radical, paradigm-shift, and transformative are used by people trying hard to impress someone. People doing good work let their work speak for itself. Great teams drop pretense in favor of simple words like prototype, experiment, problem, solution, user, customer, lesson and design. Simpler language accelerates progress. Inflated language slows it down and confuses people on what the goals are.”

Third, consider structuring your physical office environment to better promote creativity and idea generation – even among those employees that you wouldn’t normally consider creative types. Tailor the specific methods to how your team operates, but try to engage thinkers with different skill sets from across your organization. Google puts “an ‘ideas board’ on a wall in a well-traveled hallway. One engineer puts a problem or idea on the board. Others then take a look. If they’re interested, they often get involved and try to tackle the unfamiliar problem, sometimes coming up with answers to large, seemingly insurmountable problems after only a few days.

By promoting collaborative problem solving, Google taps into another recommended method for unlocking innovation – reframing the problem and asking new and different questions. Einstein once said, “If I had an hour to solve a problem and my life depended on the solution, I would spend the first fifty-five minutes determining the proper question to ask, for once I know the proper question, I could solve the problem in less than five minutes.” Google’s Ideas Board encourages people to ask different questions, or get help doing so. Otherwise, a struggling engineer can get stuck looking at a problem from the same 3 close-up angles – when all they needed was the birds-eye view offered by their colleague at the other end of the hallway.

Fourth, make sure your financial strategy is aligned with your new goal of increased innovation. It’s often said that the essence of strategy is picking the right problem to solve, then creating time for it by “sunsetting” work that is either no longer relevant, or not creating enough value. So once you’ve selected the business problem you plan to solve, innovation involves making a lot of resource allocation decisions.  In the words of management guru W. Edwards Deming:  ”A bad system will beat a good person every time.”

How is innovation supported and rewarded by the structures of your organization? Do you provide time for innovation among your staff and executives? Does your budgeting allow any room for innovative new projects? In many organizations, the rewards for success are minimal, and the punishments for failure are extreme.

Fifth, after you’ve created the right environment for innovation to thrive, start hiring people who love to work on the kinds of challenges you face. Don’t look for pedigree or titles, look for people who are obsessed with achieving the results you want.

Related Reading:

• FastCompany: The Paradoxical Traits of Resilient People
• Lean Goes Better with Coke – the Future of Corporate Innovation
• The Pitfalls of Hiring, Judging Performance Without Context
• Want even more? Visit our growing library of articles on Driving Innovation

Every week I talk with organizations who are looking for a change agent–someone with creativity and drive, and a proven track record of kicking new initiatives into high gear.

Why do they come to me?

Because hiring managers are beginning to realize that the skills required to create a track record of success in good times (any time before 2008) are different than the skills needed since the downturn began. Managers have been disappointed by candidates who spoke eloquently about innovation in the interview but failed to deliver results. At Staffing Advisors, we live and breathe innovation. We see it up close every day within our firm, and across hundreds of searches, we’ve learned what to look for when we interview people for our clients.

So how do you weed out the hacks and the phonies during the interview process? How do you find people who are delivering results right now? Here are five of our best articles on how to hire an innovator: 

1. How to Interview an Innovator – How can you accurately discern from the interview how a candidate will perform on the job? Separate the real deal innovators from the poseurs and empty suits with these methods.
2. Hiring People Who Can Handle Ambiguity – Innovators often excel at ambiguous and complicated grey-area tasks. But to effectively understand how candidates handle ambiguity don’t ask,”Tell me about a time you were in an ambiguous situation.” It won’t work. Try this instead.
3. Hiring People Who Have a Growth Mindset – A survivalist mentality crept into some workplaces, characterized by fear and risk aversion.  This outlook is counter to what’s needed to jump start growth. Here are 5 important qualities needed in people who lead growth initiatives.
4. Don’t Believe Everything You Think – If you’re looking for an innovator, be sure to hire candidates who demonstrate successful adaptation to rapid change. What distinguishes these people? They are the ones who consistently challenge your organization’s out-dated assumptions, the ones that take the time to constantly view problems from new perspectives. Is an innovator really going to be an effective change agent for your organization if they can’t do this regularly?
5. Why Do Change Agents Often Fail? – After you successfully identify and hire a real deal innovator, you’re not out of the woods yet – studies show that up to 70% of change initiatives fail. Fortunately, you can dramatically improve your odds using these insights from the field of neuroscience.

If all these articles make you begin to think that innovation is more perspiration than inspiration, then you are on the right track.

If you’re looking for a candidate with highly competitive skills, remove the salary history requirement. Asking for a salary history is instantly off-putting. High-quality, in-demand candidates will tune out and not complete the application process. And why should they? They’re being heavily recruited by other organizations that didn’t put up as many hurdles in the initial application. And they’ll likely take it as an attempt to lowball a salary offer, and steer clear.

Is the market for the position particularly scarce, where every application you get counts? Then don’t be such a stickler for the rules that you will instantly disqualify a top performer because they chose not to include the required salary history. You may have overlooked someone perfect for your organization. And odds are they didn’t include it because they want to ensure that your compensation philosophy is market-based – not based on their salary history.

Now, I’m aware that not all positions and budgets require a top performer, and not all positions are lacking in highly qualified candidates. If you’re looking to fill a dime-a-dozen position in a market with a plethora of talent, you can probably get away with including salary history in your application process. You get market data for free – so you can easily narrow applicants down to those that meet your budget. Candidates will still find the question off-putting, but the resulting few that drop out of the application process likely won’t damage your chances of finding someone to fill the position. It’s much more destructive to your chances when there’s market scarcity for the needed position.

Recently I spoke with an HR executive who had just filled out a frustrating application.  She said, “I implemented all these labor-saving components into my Applicant Tracking System, but I didn’t realize what a terrible experience the candidates were having as a result.”

Go test this – apply for a job in your own company and see if you give up before completing the application process. If you’ve instituted multiple requirements or labor saving measures, I’m betting you’ll walk away with a headache – especially if salary history is only one of many hurdles. Now imagine how many top performers did the same thing for all your past open positions.  Your search for talent might be easier (and maybe more successful) if you lower your organization’s initial barriers to entry.

Early in a new search, and again at the offer stage, we talk with hiring mangers about what kind of salary they plan to offer the candidate. In those conversations, it appears that many hiring managers struggle to find a framework to talk strategically about compensation. Fortunately, most experts agree on what factors you should consider in discussing compensation. I’ll share some of those factors below, but remember that salary is not everything–it’s also important to understand how salaries fit into your total reward strategy. See, “Are You Ready to Explain Your Compensation Strategy (Coherently?)” 

Before we start with the expert recommendations, let’s first dispense with two common, but really counterproductive salary negotiation tactics:

The weakest logic I hear from hiring managers is when, in generating a job offer, they say, “I just looked at the candidate’s previous compensation and added 10%.” This flawed approach demonstrates that the manager has no compensation strategy of their own. They are simply hoping the candidate’s last company had a smart compensation strategy; otherwise they compound the very mistake that caused that employee to consider leaving.

Another salary negotiation tactic that’s certain to backfire is to low-ball a job offer to a top performer and expect that they are either: a) poorly informed enough to accept it; or b) willing to keep negotiating after a bad-faith move from the hiring manager. Taking this approach overlooks the big picture of compensation–you need to pay fairly because other employers are hotly competing for the very same people. Only desperate people accept a low-ball job offer. Top performers will simply go elsewhere–to find an employer that understands their market value and does not play games with their pay.

You simply can’t wing it in these conversations – money is too much of a hot-button issue. Follow Dan Pink’s advice from his book Drive:

“The best use of money is to take the issue of money off the table . . . Effective organizations compensate people in amounts and in ways that allow individuals to mostly forget about compensation and instead focus on the work itself.”

OK, so winging it is not the answer. What about just using the data found in salary surveys? In some organizations, when I ask how they determined a target salary range, I hear, “That was the range HR gave me.” And when I ask HR how they arrived at a target salary, I usually hear, “We want starting pay to be in the midpoint of the salary range,” (or about the median, or 50^th percentile figure in a salary survey). It sounds fair and scientific, so what’s wrong with that?

Alas, even when your compensation philosophy is to pay 50^th percentile overall, that doesn’t mean you should just pay everyone the number you looked up in the salary survey. You need to adjust it based on other factors like the market’s supply of talent, your performance expectations and turnover rates. According to compensation expert, Kim Keating, President of Keating Advisors:

You have to be very clear about the criteria that determine an individual’s pay. It doesn’t matter whether it is education, experience, performance, the size of the department, the department’s revenue responsibility, etc. But for a system to be perceived as fair, you have to articulate your organization’s key drivers for the internal pay hierarchy. You’re not going to get any return by paying people the same. If you say, “All Directors should be paid the same,” regardless of performance, experience, etc., it ultimately demotivates your high performers. Instead, create consistent criteria for where an employee and their position fall in the salary range.

 So if you want to think like a compensation expert, use this 5 factor framework:

To determine the appropriate pay rate for a position, the compensation professionals at Keating Advisors start with the data in salary surveys, and then adjust their salary recommendations based on the five factor framework below (Click on the chart to enlarge the image):

For example:

• If the local supply of talent for a particular skill is scarce, you might need to pay at the 75^th percentile of salaries in the survey.
• If the local supply of people with a particular skill is abundant, you might only need to pay at the 40^th percentile.
• If your performance expectations for the position are exceptionally high, you should consider paying at the 75^th percentile.
• If your performance expectations are merely average, 50^th percentile might do.

In the executive search world, we operate almost exclusively at the intersection between a scarce supply of talent and exceptionally high performance expectations. But not all my clients need to make salary offers at the 75^th percentile. To spend your salary budget wisely, you need to look at all five factors in combination. If you enjoy low turnover among your best people, and your industry has rock solid stability while other local employers do not, you might find that paying less will work out just fine. Similarly, if your organization is highly regarded (like Google), and top performers are standing in line to work for you (that’s called “High Affiliation” on the chart), you might not need to pay top dollar.

Simply looking at a compensation survey and paying 50^th percentile to everyone, without considering other factors, is a needless waste of your compensation dollars. You’ll overpay some people, while causing unnecessary turnover among others.

For more information about how to spend your salary budget wisely, read this white paper from Keating Advisors.