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Sins of Compensation: Top Interview Mistakes To Avoid

, , , | Aug 25, 2022 5:00:00 AM | By

Despite the headlines about layoffs, inflation and recession, it’s still a candidate's market, with 11 million open jobs in June and 40% of employees planning to quit for other employers. Companies are still in competition for talent. Only now they have a tighter rein on spending. At the center of this is compensation, a company’s biggest expense and one of the top reasons candidate’s decide whether to accept an offer.

To help companies with these priorities, we’re sharing how to prevent the top compensation mistakes in five stages of the employee journey.

Up first, interviews.

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How you manage the interview — and the foundational steps that lead up to it — can influence more than a candidate’s decision to sign on. It can affect your company’s finances, pay equity, and ultimately, your company culture.

Here are the top 3 mistakes companies make in the interview stage and how to prevent them.

 

Mistake #1: Ignoring market drift and variance

Solution: Use relevant, quality data to create pay ranges and post them in your job descriptions

Before you post an opening, do the pre-work. That means benchmarking and market analysis to learn how your compensation plan compares to your competitors,’ and creating job levels and pay ranges.

“If you skip these steps, you're at the whim of the next shiny new candidate,” says Julia Dow, OpenComp’s vice president of compensation services.

These steps will also set a clear foundation for pay adjustment and promotions down the line, Dow adds.

To get the most accurate picture of the current market, choose salary data that is:

  • Less than a quarter old. As recent months have shown, the market changes fast. Choose a data provider who can keep up.
  • Relevant. There’s a vast difference between what an early stage company, a Series C and a FAANG offer in cash in equity. If you’re a company of less than 50 people searching for product-market fit, say no to salary data that forces you to compete with Amazon. Instead, choose data sourced from companies who are similar to your industry, size, funding stage and location for an apples-to-apples comparison.
  • Reliable. Use data that’s provided by employers and verified by a third party. Data that’s self-reported by employees is often inflated and doesn’t reflect differences in pay by job levels, industries and company size. Be warned: Most free online sources rely on self-reported data.

 

Mistake #2: Waiting to discuss compensation until the end of the hiring process

Solution: Explain your compensation philosophy upfront and confirm it aligns with the candidate’s expectations

“I’ve seen founders become enamored with a candidate only to find out the gap in salary expectations is too far to close,” says Jose Guardado, seasoned recruiter, operator and founder of Build Talent, a search firm based in San Francisco.

You can avoid most disconnects about compensation by simply starting the pay conversation as soon as possible. If you posted a pay range or its midpoint in your job listing, you’re well on your way.

The first time you call or meet with the candidate, confirm that they’re comfortable with the salary information you’ve shared. It’s possible that they missed that information in the job ad, or a recruiter never shared it.

This is also an opportunity to add context to the numbers:

  • Explain your compensation philosophy, the formal statement that explains how your company pays its employees. For example, “We pay in the 75th percentile of the market rate for San Francisco for all of our roles.”
  • If you’re targeting multiple job levels, let the candidate know the reason why, and how you’re going to evaluate them to determine the job level that best suits their skills and abilities.

Starting the pay discussion early has two major benefits:

  • Avoids wasted time for everyone. If the gap between a candidate’s expectations and your budget is too wide, you’ll likely never come to an agreement. Thank them for their time and end the process amicably so all parties can move on in their search for the right fit.
  • Establishes a trusting relationship with a potential employee. Your transparency shows a candidate that pay at your company is not random or personal, but part of a data-driven strategy. If that candidate becomes an employee, you’ve already set the foundation for a positive relationship.

Keep the comp conversation going

Things may change for the candidate during the course of the interview process, such as goals or job offers from other companies. To ensure you’re still aligned on pay, ask periodically how their search is going and whether they’re still comfortable with the range.

A word on pay equity

As you’re talking comp, do not ask candidates about their salary history. It may seem like a routine question, but it can lead to harmful results for the candidates, such as unconscious biases that affect how you perceive their skills and abilities. And if you base your offer on a person’s salary history, you can inadvertently continue pay inequities.

Fresh, relevant and reliable market data paired with job levels with clear criteria for abilities and experience can help you pay fairly, not build on the mistakes of others.

 

Mistake #3: Making comp exceptions without considering your overall strategy

Solution: Put limits around which roles you’re willing to flex for (and how much)

“What’s important is having a plan and sticking to it,” says Guardado.

A plan means your hiring team, managers and other stakeholders agree on the abilities and experience required so you can target the right job level and pay range.

When talent is critical to your business, you may need to go higher in the range or above your max. That’s common among growing companies.

“Make sure to cap how far you’re willing to stretch your budget to win this talent, and limit the number of exceptions you’ll allow,” says Dow. “Not every hire should be an exception.”

And an exception should stay an exception. Don’t base your compensation philosophy or strategy on one, Dow adds.

 

Make it easy with OpenComp

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Skip the complicated spreadsheets. In just three clicks, you can build expert-grade salary bands with the most up-to-date and relevant market data for your specific company.

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