Paying a higher salary can backfire – here’s how to avoid it

Paying workers a higher salary, especially when their performance and productivity is superior, can serve as a great way to inspire them to never stop improving. However, there's no guarantee that an uptick in earnings will keep them from walking out the door.

It raises the question: How do you reward key employees for their good work without risking getting burned?

In an increasingly competitive hiring environment, one where job openings outnumber those looking for another line of work, businesses large and small are upping the ante in order to encourage valuable employees from taking their talents elsewhere. Indeed, according to a recent poll conducted by Robert Half, nearly 60 percent of respondents said they've extended more generous counteroffers to employees who were contemplating accepting a position with another company.

Pay is consistently among the most important considerations employees take into account when assessing whether to stay with a company or say "yes" when a job offer is made. A majority of Americans – 51 percent – in a separate Robert Half poll said they believe what they're paid isn't commensurate with the amount of work they do.

Paul McDonald, senior executive director at the Menlo Park, California-based staffing firm, said counteroffers all too often serve as a Band-Aid – in other words, they're not long-lasting resolutions. And when they become routine, they could be a symptom of deeper problems.

"Counteroffers are typically a knee-jerk reaction to broader staffing issues," McDonald warned. "While they may seem like a quick fix for employers, the solution is often temporary. When employees accept a counteroffer, they will likely quit soon afterward."

In fact, when the 5,500 hiring and senior managers were asked how long employees remained with the company after accepting counteroffers, the average response was approximately one and a half years.

A high turnover rate can be quite costly for business owners. According to a 2017 study from the Work Institute, the cost to replace an employee earning a median annual salary of $45,000 averages $15,000 per person.

How do you pay your key employees more and ensure they remain loyal? It boils down to the fine art of negotiation. Psychology professor Art Markman offered some suggestions at the Fast Company Innovation Festival in New York.

Find common ground
According to Markman, every business owner and employee comes to the salary bargaining table with certain goals in mind. The elephant in the room is whether the worker will be paid more. So instead of a "yes" or "no" answer, seek out common ground. In other words, state what both sides want and then what needs to be done in order to get there. For example, in return for a higher wage, employers may want certain guarantees, like staying with the company for a prescribed period.

Don't fall into 'stranger' trap
Relationships fall into one of three categories: Family, neighbor and stranger, Markman noted. With family members, generally speaking, there's no expectation of getting paid back when doing something for them. Among neighbors, relationships tend to be based upon mutual interests, given their proximity to one another. Stranger relationships, the most common of all, are interactions almost entirely in the moment.

The key is to avoid falling into this stranger trap and approach negotiations as you would a neighbor. This can help to pinpoint where you share common ground.

Understand that negotiations are zero-sum
Zero-sum is a political term that means whatever is gained by one side, the other no longer possesses. But this "winner-take-all" line of thinking doesn't have to be the case in negotiations. Both sides can walk away feeling victorious, so long as shared interests can be settled upon.

"We influence the relationships we have though every interaction," Markman explained. "Do you want everyone to be strangers? You want to create negotiations that are just because I win, it doesn't mean you have to lose."

Employment agreements put into writing what your new or veteran staff get as a result of a successful salary negotiation. But business owners have rights as well. Hudspeth Law Firm knows the ins and outs of contract law and can protect your key interests when courting key employees. Contact us for a free case intake and evaluation.

Categorised in: Contracts & Transactions

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