A firm cannot fill a position at what it has always paid for that position. The conclusion drawn is that expectations have become unrealistic.
Occasionally that is right. More often the firm is benchmarking against its own history rather than against what a person with those capabilities can currently earn, which are entirely different reference points.
The comparison that matters
Not what the firm paid three years ago, adjusted. Not the national figure for the job title. What somebody with these specific capabilities can earn within the distance they are willing to travel.
That figure is knowable and most small employers have never established it. It is available from the people who left, from the firms competing for the same people, and from candidates who declined, all of whom will generally say if asked directly.
An employer who has not established it is negotiating without knowing the market rate, and is likely to conclude that a candidate declining an offer was being difficult rather than being informed.
What pay communicates internally
Beyond its market function, pay operates as a statement, and it is read alongside everything else the organization says about what it values.
A firm that describes safety as its first priority and pays its safety-critical roles at the bottom of its range has communicated a ranking. A district that says it values experienced teachers and compresses its salary schedule has said something about how much it values them relative to newer ones.
Neither of those is necessarily wrong as a resource decision. Both are read as statements, and the promotions principle applies: a costly signal is believed over a free one.
The compression problem
A specific and common failure that produces departures nobody connects to pay.
Market rates for new hires rise. The firm meets them because it must. Existing employees, whose increases follow an internal schedule, are not adjusted correspondingly.
Within a few years somebody with eight years of service is earning close to what a new arrival is offered. They will find out — in a small workforce they always find out — and what they learn is that their eight years counted for nothing.
The resulting departure gets recorded as a better offer elsewhere. The cause was internal and was entirely foreseeable, and correcting it after somebody resigns is the counter-offer problem from the retention entry.
Where pay is not the constraint
Worth stating, because the argument here can be read as saying that every vacancy is a wage problem, and it is not.
People decline positions and leave jobs for reasons that money does not address: a supervisor, a schedule that does not work with a family, a spouse who cannot find employment, housing that does not exist, or work they do not want to do.
Paying more for a position with an underlying problem buys time and does not fix it, and the same vacancy recurs at a higher cost.
Which is why the four-way diagnosis matters before any pay decision. An employer who raises the rate on a retention problem has purchased the same turnover more expensively.
Transparency about the structure
A distinction worth holding: being open about how pay is determined is different from disclosing what individuals earn.
An organization where nobody understands the basis for pay will have people constructing explanations, and the explanations reliably involve favouritism, because that is the available hypothesis when no other is offered.
Stating the structure — what determines a range, what moves somebody within it, when it is reviewed — removes that without disclosing anything individual. It also imposes a discipline on the employer, who has to have a structure in order to describe one.
Public bodies operate under their own disclosure obligations, which vary and are a question for counsel rather than a matter of preference.
The one-employer town
Where a firm is the principal employer, it sets the local rate rather than responding to one, and the market will not correct an underpayment.
An employer in that position can pay below what the work is worth for a long time, because the alternative for employees is leaving the county. The correction, when it comes, takes the form of nobody’s children staying.
Firms that hold a workforce for decades in these places generally pay somewhat above what they could get away with and treat the difference as the cost of the position rather than as inefficiency. It also buys the retention, the reputation, and the recruitment that make everything else cheaper.
Edited by Patrick J. Wolf, PhD