Making a competitive offer when you can’t ask salary history
Posted on 09-14-2018
Since we’ve started following the salary history ban legislation the number of states with bans in place has increased from four to eleven, and the number of local bans (currently 11) is growing as well. These numbers will only continue to grow and several states have pending legislation in place expected to take effect within the next year. As an added layer of complexity, some states are even “banning the ban” or putting laws in place that protect the right to ask salary history. It’s important for HR leaders to stay abreast of the changes; HRDive.com is maintaining a running list and has an email alert tool to keep you up to date. If you’re just getting up to speed on what the salary history ban is and what it means for your organization, read our post “Salary History Ban 101 for Hiring Organizations” which discusses the impetus behind the law and some best practices for adhering to the legislation. Regardless of whether the salary history ban is in place in your area, we’ve recommended that you move away from asking about it. However, we recognize that getting the best candidates to say “yes” to your offer is challenging in today’s hiring environment, so here our best tactics for successful negotiation:
Manage the “anchor” when presenting a job offer
You are hiring and have a salary range, but how do you get someone to say “Yes” to an offer in that range? In response to the salary history bans, many organizations are starting to ask a candidate’s salary expectations. While this information can be helpful, you need to consider the “anchoring” effect that happens when you have candidates providing their salary expectation, and understand where this number comes from and sometimes, the irrationality behind that number.
Frequently candidates decide to use online salary surveys to figure their worth and may be convinced they have accurate data. We were called in to help an organization after their top candidate turns them down on what they thought was a very reasonable offer. The candidate, however, felt the offer way too low. They told us he used a salary survey tool and decided that he was worth 40% more than their offer, based on this data. As you probably know, these online salary surveys often don’t accurately account for the position and job responsibilities nor for cost of living differences and frequently just provide the national average (which was the case with this individual – he was looking at the national average when he lived in a city that had a low cost of living). But once he had that figure in his head, any reasonable offer he received wasn’t going to satisfy him and the organization had to start over to find another person to fill their key role. This candidate had set what is called an “anchor” and nothing less would do.
A well-known cognitive effect in negotiation called the “anchoring bias” describes the common tendency to give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point, or the “anchor.” We frequently see this “anchoring” effect in salary negotiations. Once someone has a number in mind, it is hard to, change their mind, so to speak.
This is where you, as the professional, have to learn how to overcome your “bias” and work with the candidate “bias” as well.
If you are in one of the areas covered by the new compensation laws, you can’t ask and candidates can’t (but many still do) tell you their current compensation. How do the candidates decide how to ask for fair and reasonable compensation in their next position? Most individuals, unless in sales, are not good negotiators. Perhaps this is one area where the laws meant to help individuals, may not be doing them quite the favor intended. Individuals trying to get a job wonder: “How do I decide what I should ask for and not leave money on the table or not knock myself out of consideration because I ask for too much?” It puts candidates in a difficult situation.
You, as HR, at least have training and guidelines. Your candidates – not so much. So where do they go to get this information? Google, of course.
As in all things internet, the advice is varied. We decided to Google how to answer the “what are your salary expectations” and looked at the advice on the top three websites that came up at the time. The first website advised adding 10-20% to your current salary – no more so you won’t seem greedy. The third result on Google was from a popular women’s career site. As you know, there is a lot of bad advice out there on the web, and this site, in our opinion, offered some bad advice. This site suggests you take your annual living expenses and multiply it by 3 and that is the salary you should ask for. So if you have an expensive lifestyle and appreciate the finer things in life, you should consider yourself worth more to an organization? As you can see, there is a reason why some candidates struggle to define a reasonable salary expectation.
Although most HR leaders use national survey companies such as Mercer and others to inform their pay ranges, there are still problems with the salary surveys you and your candidates are using:
- Your candidates do their own research and get that number or anchor in their head
- There are huge disparities based on the surveys used
- Significant inconsistencies exist across organizations in terms of roles and responsibilities (particularly for specialized positions, like roles related to population health)
- If it is a “hot position”, say a Chief Information Security Officer, with salaries increasing on almost a monthly basis, your data will lag behind the salary needed to attract the top candidates
This makes it tough for you to make an offer that will be accepted and to hire the right person for your organization. Even at the executive level, salary expectations can vary widely. Here is an example from a search we conducted for a CMIO. The salary ban had just started in NYC, Philadelphia and Massachusetts, the areas where we were likely to find candidates. We asked the top 25 candidates (all of whom met or exceeded the minimum qualifications for the position and were highly interested in the role), what base salary they would require to accept this position. The answers were all over the place and ranged from $245,000 to $672,000. The average was $370,000. The thing to keep in mind was that respondents were told before they gave their salary expectations that we typically see salary increases of around 10-15% when someone changes jobs. They were provided a link to a cost of living research tool to help ensure they were somewhat realistic in their figures, and yet we still saw a range of over four hundred thousand dollars. It will come as no surprise to you that most of these doctors still heavily relied on their current salary to determine their “worth”, so to speak.
Even when you are transparent about the salary range you will still likely see the anchor emerge. If a candidate is told a position pays between $210,000 and $270,000, all they typically hear is the $270,000 and assume they’ll be paid at the top of the range. No one ever believes (or admits) they’re only worth the $210,000 price tag.
As an HR leader you’re going to encounter all sorts of biased expectations—it’s going to be critical that you not only understand the anchoring effect but develop ways to educate candidates about what the market is actually paying and how you determined what to offer them.
Make it about more than just money and tell them “why” before you make your offer
Even though job seekers usually make the greatest salary gains when they change positions, interestingly enough a higher salary usually isn’t the primary reason someone seeks a new opportunity. According to the latest research, the primary reason is that they’re seeking a new challenge. While money is important, it is NOT the primary reason. That said, we haven’t found many candidates who will take a pay cut – again, the anchor.
In healthcare, you have a GREAT “why” with your organizational vision and selling that vision is paramount. You must communicate how the role meets candidates’ need for a new challenge and the “why”, at every step throughout the process (even at the offer stage is crucial) to get them to accept your offer.
In his book, Influence, Dr. Robert Cialdini discussed a simple psychological experiment conducted which reveals the amazing power of a reason “why”. While conducted some time ago in a college setting, it still shows that the “why” is important. You can tell this is an older experiment because it takes place in front of a copier. An experimenter holding 5 pages to copy walked up to the front of a line and asks if he can cut in line using 3 different scenarios. In the first scenario, the experimenter said, “Excuse me. I have 5 pages. May I use the Xerox machine?” We, as humans, try to be helpful, but in this case, only about 40% of us agreed. You’ll notice the experimenter didn’t give a reason why they needed to cut in front of the line. In the second scenario, the subject said, “Excuse me. I have 5 pages. May I use the Xerox machine because I’m in a rush?” 94% of the time the subject was allowed to cut in line! OK, great, but that’s probably because the person was in a rush. Of course, people will help someone in a rush, correct?
As it turns out that’s not the reason why this worked. In the final scenario, the experimenter said: “Excuse me. I have 5 pages. May I use the Xerox machine because I have to make some copies?” Really? That was the “why”? Because I need to make copies? So did everyone else in the line. Yet, this pretty ridiculous “why” still worked 93% of the time!
Why did that last scenario still work? The only difference between case #1 and case #3 is that the subject said “because I have to make some copies.” I already mentioned that’s ridiculous and redundant. Clearly, anyone walking up to the photocopier has to make copies. But the difference between stating the obvious versus not giving a reason why led to a 53% increase in response! That’s huge.
This is a simple example, but it shows the power of providing a “why” – and getting a Yes.
You need to provide the “why” for your candidates. As an example of this in action, we were conducting a CIO search for a children’s hospital. Being a children’s hospital they already have a great “why” however, this particular children’s hospital wasn’t in a highly desirable place to live which can make attracting high caliber candidates a challenge.
Yet, they have no trouble attracting talent because they really sell candidates on “Why work for us.” It starts with their CEO who tells phenomenal stories and provides such a great “why” he makes you want to work for them. When we met with him, he relayed stories of his patients and how the organization helps “his kids”. His office is filled with drawings, pictures and other memorabilia. There was a beautiful sun catcher in his window and he told us the story of the young cancer patient who had made it for him and how his hospital was able to be there for her. He had us in tears. You couldn’t help but want to work for this visionary organization. What is your why? How do you use it to tell a compelling story and attract candidates to yuor organization?
Create an exceptional candidate experience
Thanks to MU you are now trying to improve your patient experience scores. But what about your candidate experience scores? When you think of customer experience who comes to mind? Disney? The Ritz? Zappos? According to Forbes – all 3 fall into their top ten of 2018 obsessive customer service cultures. There is study after study showing that making the other party “like you” and providing a great experience is key to “getting to yes”. It holds up even in business negotiations. However, with the unemployment rate what it is and looming shortages in the physician and nursing areas, healthcare organizations face increased competition for the really good candidates; delivering an exceptional candidate experience can help you not only attract the best candidates to your organization but get them to say “yes” to an offer. Are organizations doing that?
Not according to our data. We conducted a survey last year of job seekers who applied for a healthcare position at director-level to C level and found that just 17% felt that the organization delivered an A or A+ experience. Over 70% gave the experience a C or below. Candidate experience is a key area your organization can use to differentiate itself in this competitive market and make it easier to negotiate an offer.
We recently partnered with an organization hiring a senior level executive. They wanted one particular top candidate and knew she was in high-demand and interviewing with several other organizations. When she flew in to interview with our client, waiting for her in her room was a welcome basket with snacks and some products the local area was known for. The organization picked her up at the hotel and drove her to the interview location so she wouldn’t have to worry about parking and logistics. The organization found out that she was an foodie and avid bicyclist, and provided information about restaurants she may enjoy while visiting and trails in the area. They had the candidate’s potential boss and other key executives take her out for some meals and provided comprehensive information about the community. They also set-up a meeting with a real estate agent so they could show her where she might want to live. Needless to say, the candidate was “wowed” and even though the offer she received from them wasn’t quite as high as she was hoping (and not as high as others she received), she instantly accepted it because the organization made her feel so valued and important. We are NOT saying you should use candidate experience as a way to offer less compensation, but it goes a long way towards helping candidates feel valued and making them say “yes” to your offer.
Consider making a “best and final offer” in lieu of playing the negotiation game
Getting to a win-win solution is never easy. Our final tactic may not be right for all organizations but is something worth mentioning because we’re hearing about it more and more.
One way organizations can combat salary differences and differences in the propensity to negotiate is to make all candidates their best and final offer (or said another way, giving each candidate the amount you would have if they’d negotiated out of the gate and then not entertaining salary negotiations).
This is where it gets tough – how do you decide what the right “final offer is” and feel confident saying “This is it. We don’t negotiate on salary”. If you’re going to use this approach, it’s absolutely critical that make the “right” offer and leverage the tactics mentioned above.
We’re going to be watching how this salary history legislation continues to unfold and will be offering our executive search clients our expert guidance along the way. If we can assist you with finding great candidates and determining how to craft competitive offers, please contact us.
By Judy Kirby, CEO of Kirby Partners
This content is based on a presentation by Judy Kirby along with Jordy Rabinowitz, Senior Vice President, Human Resources for Westchester Medical Center from the 2018 ASHHRA conference on how organizations should navigate the salary history ban and make a job offer that will be accepted.