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Use a Salary Reopener Clause to Increase Your Offer Acceptance Rates
Posted By Dr. John Sullivan On February 11, 2013 @ 5:28 am In Advice and How-Tos | 4 Comments
One of the most frustrating elements of recruiting occurs when after weeks of hard work, you have found an excellent candidate who is excited but you can’t get past the last sticking point: the appropriate starting salary. The candidate naturally wants more, but the company is often reluctant to offer more money because they are uncertain whether the new hire will produce at a level high enough to justify their higher salary request. Rather than losing the candidate, consider offering them a “salary reopener clause.”
The salary reopener gives the new hire a chance to get that added money within a short period of time, provided that their actual performance for the first few months has been worthy of the higher salary. No candidate wants to wait, but if they are confident in their ability, they may be willing to wait a short few months to show you that you are wrong. All you are really doing with the reopener clause is postponing the final salary determination until the new hire has a chance to prove their worth. Salary reopener clauses are quite common in union contracts but they are unfortunately underused by recruiters.
A lack of confidence almost always reduces a manager’s willingness to invest. From a company’s perspective, it only makes sense to be a little skeptical about a new hire’s future performance because in some cases, nearly 60% of new hires are not optimal. Almost every manager can the recount numerous stories of under-performing new hires who disappointed them.
A high level of uncertainty and a lack of willingness to invest in a higher salary can occur for a variety of reasons. Many are outlined below. The finalist …
So in the end, if the hiring manager, the recruiter, or the compensation analyst lacks confidence, it is only natural for them to offer a lower starting salary that matches their lack of confidence. And unfortunately, if they can’t make a convincing argument, they will likely lose any candidate who can stay at their current job or who has other likely offers available to them.
In addition to worrying about new hire under-performance and failure, managers also fear “over paying” a new hire. This overpaying results when you pay a new hire an average- or above-average performer’s salary but the new hire actually performs at a below-average level. That overpayment is known as “salary waste.”
When both sides agree that there is no way to actually prove the candidate’s value before they start work, an approach I have used successfully is a “salary reopener clause.”
This approach actually tries to take advantage of the candidate’s confidence in themselves and their future performance by offering them a “salary reopener clause” after a few months on the job. Just like star athletes moving up to the next level, the best candidates are confident that they will be a top performer. So under the salary reopener method, you take advantage of that confidence by showing that after a short period of proving themselves (usually three or six months) that their salary will be renegotiated upward. After asking the candidate to “prove themselves first,” you will find that many will accept the “challenge.”
There is no standardized process to follow for new hire reopener clauses. However, here are some important things to consider when implementing this option. They include:
Many executives mistakenly think that underpaying is a good thing because obviously it saves the company money in salary dollars. But hiring managers need to realize upfront that there are some major negative performance consequences associated with underpaying the new hire. Those negative consequences can include:
A salary reopener is a powerful tool that I have found to overcome a situation where the applicant thinks that their value is higher than the company assesses it to be. The company gets to delay putting “all the money” as guaranteed on the first day.
Candidates can accept the reopener clause because they are confident in their ability and they may only have to wait as little as three months to get the salary that they feel they deserve. People who are desperate for every penny might not be willing to wait, but top performers are not generally afraid of a “show-me-first” deal, as long as it is of a short duration. The salary reopener clause is not a solution for every case, but it works amazingly well when both sides come around to seeing it as a win/win option!
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