Part II: Understanding the market will help determine whether you should lead, match or lag on compensation
When I turned 21 years old, I was a junior at Bowling Green State University and had just changed majors from music education to business. It was then that my dad gave me my first $500 to invest in the stock market and a book by Louis Rukeyser titled, “How to Make Money in Wall Street.” This book introduced me to an axiom of investing that I’ve found has applications well beyond the stock market: “A bull makes money, a bear makes money, but a pig goes broke.”
The phrase references a rising economy (bull market) and a declining economy (bear market). But the reference to the pig is about those who invest with greed, trying to time the markets and get rich quick, rather than selecting the appropriate investment strategy for the current market flow. Now, I’m not here to tell you how to make a quick buck on Wall Street, but this concept can make or break your company if you know how to apply it with three critical human capital investment strategies.
In the November 2018 issue of Marijuana Venture, I addressed various compensation elements that can be flexed in order to build customized and compelling offers to attract top talent. I also outlined the need for a compensation philosophy and strategy. Three strategies that can be employed are: lead, match or lag.
First, let’s understand what these terms mean:
– Lead: In short, you pay more for the talent than the going market rate. After all, who wouldn’t want to take a job that pays more than anyone else in the same role at another company?
– Match: All you have to do is match the current market. Surely candidates will buy into the fact that, “this is the rate … take it or leave it?” Right?
– Lag: Pay less than everyone else for the same talent to do the same job. This is the biggest money saver of all and an employer’s dream. You’ll rake in the money and not have to share!
Unfortunately, the strategies are not as easy as they sound, but each does have its own place.
Your compensation philosophy should be based on an understanding of the underlying strategy you choose. Understanding the market for specific roles will help you set the appropriate compensation for each position and situation. The hard part is when the market is changing right before your very eyes — as it is today. As the Society for Human Resource Management points out in its article on planning and design, “There is not one strategy that will work for every employer and organizations will need to ensure the approach they choose matches their mission, vision, and culture and supports the overall business strategy.”
Rather than adhering to a singular strategy across the organization, especially in the current candidate’s market, consider implementing a combination of each. As an example, you might choose to:
– Lead: A great option for those mission-critical and hard-to-fill roles where attracting top talent in a timely manner will make or break an organization’s success;
– Match: A recommended option for mission-important and challenging roles that could be a pain to fill and where there is a high potential of attrition due to market perception; and
– Lag: Many businesses have roles of lower importance where labor may still be plentiful or where vacancies are less damaging to the organization. For those roles where the time sensitivity or mission impact is low, this can be an excellent option.
Spreading out the strategy across roles by importance and impact can soften the blow to your profit-and-loss statement and provide the cashflow necessary to apply the “lead” strategy used in other roles. However, let’s not fixate on cost too much. Remember, that not all of your hiring tools revolve around base compensation, direct compensation or even compensation at all! The strategies could conceivably look like this:
– Lead: Mission-critical, hard-to-fill roles include a robust relocation plan, signing bonus and/or a diverse set of perks not offered to any other role in the organization (but offered to all roles in this category);
– Match: Mission important, high attrition and painful-to-fill roles include lump-sum relocation of a defined range based on need, flexibility for remote work, a retention bonus for two to three years of service and/or an attractive but narrow array of perks; and
– Lag: Low time-sensitivity or mission-impact roles include a retention bonus for three to five years of service and/or a narrow array of perks.
Still, many hiring managers, particularly those with no budgetary control or line-of-sight often jump right to, “I want this person so just pay them more!” If you cannot reasonably do that because it will blow your budget and risk pushing the organization into the red, then you cannot always lead the market. Leading the market may not always be the right answer for your company and may not even align with your organization’s mission, vision and culture.
And here is where Mr. Rukeyser’s investment axiom comes into play: We need to be prepared to educate our hiring managers around the concept of bulls, bears and pigs.
When you invest in your people with the appropriate strategy, you will make money when the labor market is tight (bear) or slack (bull) and enjoy continued successful operations and growth. However, if you are insistent at just throwing money at the problem, you are like the pig and doomed to go broke. Lead, match or lag … the choice is yours.
This article is the second of a two-part series on strategies for hiring in a candidate’s market. Part I covered the basics of attracting talent into the cannabis industry in the current economy. It was published in the November 2018 issue of Marijuana Venture and can be found online at www.marijuanaventure.com.
Michael Maggiotto Jr. is a certified professional in human resources and the senior human capital advisor for BEST Human Capital & Advisory Group. He brings more than 20 years of business experience, including owner/operator, management, human resources, project management and talent acquisition. He has significant experience within the retail, consumer products and manufacturing industries and specializes in human resources, accounting and finance and engineering roles.