We Are Getting a Raise!

Published on Friday, June 01, 2007
ARTICLES

By Michael G. Smith

We have been steadily preaching the merits of the free market for some time and it appears the market is beginning to reward us for our efforts. The demand for experienced and capable workers in the free market movement has grown rapidly over the last few years as free market organizations have grown in size and number. The supply of employees, on the other hand, has not kept pace.

As if to emphasize the point, the following message from a well-known free-market organization just joined similar messages in my inbox: "_____ has grown at a fast pace in recent months. We've added to our Educational Programs team, and we've nearly doubled the size of our Academic Programs team. We're continuing to grow, and I've listed our available positions below...."

The question arises: How will you meet your hiring needs when demand for employees is rising faster than the supply?

Responding to a seller's market for employees

Over the past 20 years I have observed how hiring is affected by changes in the economy and by rapid growth in specific sectors (eg IT). When the supply of qualified, experienced employees lags relative to demand, firms that wish to remain competitive aggressively increase the amount of compensation offered to employees they wish to recruit. Firms that do not do so suffer from key positions languishing unfilled, particularly those in management and sales (development). There is no substitute for this obvious and effective strategy: increase compensation to attract qualified employees.

When estimating the compensation required to fill a position, focus on the salary needed to attract an employee, not the "going rate." Here's why. Assume the average salary for a certain position is $100,000. Chances are you do not want to hire an average employee, so add 10 percent for a better-than-average individual. Of course, no one is likely to change jobs for a marginal salary increase, so add another 15 to 20 percent as the compensation incentive for changing jobs. Thus, to hire that $110,000, better-than-average employee it will cost $126,500 to $132,000.

In addition to raising salaries for new employees, salaries must also be increased for current employees. This is necessary because your current employee could easily become someone else's new employee if the individual's paycheck does not keep pace with their value in the labor market. You must assume your best employees will be sought after by other organizations. If you wait for your colleagues to ask for a raise, the next time you see them in your office they might be there to give you two-weeks notice.

Non-salary strategies

Other than cash, non-monetary strategies can be effective at attracting - or keeping - employees. In a period of rising demand for qualified employees, compensation tends to rise more rapidly than expected (for employers and employees). As a result, many employees may be more dissatisfied with benefits than their paycheck. Attracting employees might be more readily achieved by offering additional vacation time, paid tuition, paid attendance for conferences and better retirement benefits. Better yet, these tactics may result in higher quality employees. Paying tuition so an employee learns business skills in an MBA program can bring enormous benefits to the organization. Employees who attend conferences develop relationships with their counterparts in other organizations and bring back new ideas and insights.

Aside from money and benefits, there are other strategies worth considering. Because salaries are driven upward by increased demand for certain types of employees, consider whether the position may be filled by an employee for whom there is less demand. Perhaps a capable individual with less experience and much potential can grow into the position. The challenge is to identify exceptional individuals; the longer-term downside: more mentoring and management will be required.

Employers pay a significant premium for the sake of having employees work on site. Eliminate this requirement and many excellent employees, unwilling to move or commute to your location, become available through telecommuting. In spite of the disadvantages of this arrangement, a highly-qualified, telecommuting employee may provide more value than a less-qualified individual working on site.

Employees can occasionally be tempted by career advancement in title only. Moving from a development director position at one organization to the same position elsewhere, albeit at a somewhat higher salary, is not as attractive as becoming vice president of development. This is one reason businesses often have numerous vice presidents - it aids them in recruiting from competitors.

Finally, consider hiring from outside the movement. Many qualified individuals, who have mastered free market philosophy, work for other nonprofits or in the for-profit world and would be thrilled to work for your organization.

Relocation-more challenging than before

When jobs are scarce and raises hard to come by, employees are more willing to move for the sake of their career. However, when salaries are on the rise and new opportunities beckon from across the street, it is far more difficult to convince candidates to relocate. This is particularly true in greater Washington, D.C. where individuals have access to many opportunities with like-minded organizations. Unless the responsibilities and compensation offered dramatically exceed those of the employee's present position, it is difficult to find candidates willing to relocate.

In addition to the employee's reticence to move, there may also be a spouse and family to consider. In a strong economy the spouse likely has a satisfying, secure and high-paying job. Thus, to recruit and relocate one employee, the opportunity must be so strong that both the candidate and spouse will give up their current jobs. Further, the more senior the position, and the more experience required, the more likely that relocating an individual will entail moving middle- or high-school aged children. With good paying jobs readily available, parents are likely to forego marginal income increases to spare all family members the social disruption.

Measuring success

One way of measuring the free market movement is the number and size of the organizations involved and the rate at which they grow. The recent dramatic growth in both categories is a wonderful development. Looking ahead, I expect we will be spending more time overcoming the challenges that arise from success rather than the challenge to survive. And, if the free market has its expected effect, we will be paid - and be paying - more to do so.

Michael G. Smith is an executive recruiter who assists free market organizations in finding qualified employees. If you are interested in seeking a better career opportunity in the free market movement, send your resume to Michael at resume@smithrecruiting.com.

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