The End of the Talent Premium

October 22, 2014 Samantha Wood

There was a time, not so long ago, when prospective employers would show their love for top talent by paying a premium to convince them to come on board.

In fact, it was almost assumed that if a senior, key position needed to be filled, it was necessary to pay a bit more to ensure you were getting someone with the same skill and experience as the person leaving. Now, it’s more likely that an organization looking to fill a key position will be trying to hire at the same or even less money than they were paying before. In so many ways, it appears we are witnessing the death of the talent premium.

This is an intriguing trend given current labor market conditions. Following the economic downturn in 2008, downsizing and bankruptcies resulted in a glut of talent that allowed many organizations to pick and choose candidates with virtually no pressure to pay a premium.

However, with most of the world’s economies reaching pre-recession levels, the labor market has shifted once again. There is no glut of talent out there waiting for an offer; most of the best people in any industry are otherwise occupied.

You would think that those conditions would herald the resumption of premium pay. In fact, the opposite has been true.

Why the reluctance to embrace a hiring philosophy that had, in better times, been successful in recruiting top talent?

Despite the fact that the global economy has recovered from its precipitous decline in 2008, there remains an underlying sense the whole house of cards could come crashing down at any moment. That fear of a return to economic decline, whether real or perceived, has sparked a high degree of caution in hiring and compensation.

Avoiding premium pay is also seen as a good insurance policy against bad hires. Most organizations have horror stories about throwing money at top talent only to find out later that he or she could not meet expectations. In these cautious, austere times, those anecdotes become prima facie evidence in the case against a talent premium.

If premium pay is not an option, what are organizations doing when they have a vacancy to fill?

First, many organizations are limiting their searches to internal candidates only. The theory is that by promoting internally, there is less pressure to immediately pay a premium.

Other organizations are bargain hunting, looking to fill key roles with candidates that have less experience than their predecessors; and therefore, lower expectations as far as salary and perks are concerned.

There are risks inherent in both of these approaches.

Focusing solely on internal candidates will deny an organization valuable intelligence on the hiring market – who are the top talents in your industry, why are they successful, and what is the market rate for someone with proven credentials?

Meanwhile, bargain hunting does not necessarily produce long-term gains. When you lose skill and experience, there is a longer-term and negative impact on the bottom line.

Moreover, it’s important to remember that not all organizations have eschewed talent premiums. That means top talent in your industry is likely already aware if you pay a premium or not. That street-level intelligence could limit your ability to attract top talent.

If your organization is committed to holding the line on talent premiums, there are new strategies that can help many organizations thrive in these uncertain times.

The Compensation Succession Plan

In surveys and studies of top talent mobility, many candidates reveal that salary alone is not the only reason they will consider changing jobs. More and more of the most talented individuals are interested in organizational culture, opportunities for advancement, and other non-monetary benefits.

In that context, more organizations should consider building a Compensation Succession Plan (CSP) upfront during the recruitment stage.

This is a plan that spells out not only what a potential hire can expect at the front-end of their placement, but what will happen to their pay and other compensation if they remain with the organization and either meet or exceed expectations.

This approach can be perceived as risky, especially by organizations pre-occupied with concerns about bad hires. Putting a CSP down on paper will be viewed as contractually committing to compensation bumps regardless of performance.

However, a CSP can in fact go a long way to spelling out expectations and performance measurements. This means that not only will the organization have some protection against a bad hire, but also that the candidate will have a clear idea of what he or she has to do to earn premium pay down the road.

In the current labor market, it is proving more and more difficult to pry top talent away from their current engagements. The same lingering fear about the economy that has suppressed appetites for premium pay is causing many mid and senior-level candidates to cling to their current organizations.

Premium pay is definitely the best way to pry those people loose. However, a thoughtful and reasonable Compensation Succession Plan can become a valuable and effective middle ground in the search for top talent by providing a valuable inducement for the talent, and helping the recruiting organization gain some control over future performance.

About the Author

Samantha Wood

Samantha is the Director, Recruitment Solutions at Lee Hecht Harrison Knightsbridge. Throughout her search career, Samantha has developed an expansive network and meticulous approach to finding and attracting high caliber talent. She continually forms advisory relationships with her clients which have resulted in a track record of repeat client business.

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