When I sold locks and packaging products years ago, I had the most amazing lock vendor named Leonard.  I’ve never met anybody that knew more about locks and he provided the best service.  I watched as our Buyer beat him up on pricing because he was slightly higher.  Leonard’s response was, “A bargain is very expensive.”

The same principle applies when hiring.  Most hiring managers think they are saving money by underpaying employees and are making higher profits.  However, it’s actually the exact opposite.

Over the years I’ve heard many clients and hiring managers boast about how they are getting a “steal” when they hire an individual below market value. Is this really the case? Almost everyone has heard of the phrase “you get what you pay for,” and expect a certain quality when it comes to products or services that come at a higher rate. This expectation should certainly carry over to the team that you assemble around you, as it is equally true in regard to new hires.

Why is it worthwhile to pay your employee what they deserve when they are perfectly willing to settle for below market value?


Decreasing Turnover:

As fresh talent enters the workforce, at first there is quite a substantial amount of time spent acquiring experience. A lot of the onboarding time is aided by your own efforts and resources. This time and money spent on training is nothing to scoff at, as it is a significant investment to ensure that your new employees are operating at a level that is on par with your seasoned team members.

What happens when these newer team members aren’t new anymore, and realize that they’re underpaid?  They’re going to naturally speak to their friends who are making more money than them and recruiters are going to approach them with more lucrative jobs.

Your compensation package should be so good that your employees don’t want to talk to a recruiter like me.  You want their response to be, “My current compensation package is so much better than that so I’m not open to a call.”

I asked a hiring manager this past week, “Would you rather make $200,000 on your salesperson for 2 years or pay her an extra $50,000 per year and make $150,000 on her for 5 years?”

It’s a no brainer.  $400,000 < $750,000.

In my experience, a lot of hiring managers believe that employees are going to be loyal to them and many are.  However, when you’re married with a mortgage and 3 kids and a recruiter leaves a voicemail saying, “I have a job for you and we pay you $25,000 more than what you’re making now,” you better believe they’re going to call back.

The fact is that if you underpay your employees, you’re going to invest a meaningful amount of time and money into training them, and many will leave as soon as another company offers them more money. After they leave, you will then have to replace them and train someone from scratch, which will in turn cost you even more time and money.  I’ve read many studies but once recent one stated that on average, it costs $35,000 to hire and train a new salesperson.

I recently spoke with a hiring manager who mentioned to me “High turnover is just the nature of the beast in our industry.”  I don’t believe this is the right mentality to have when hiring employees and I interpreted it as, “We don’t pay or treat our employees as well as we should so they don’t stay here long.”  If you adequately express the value that you see in your employees through a fair compensation plan, a strong amount of loyalty will develop, and turnover rates will drop.


Expressing Value & Building Loyalty:

As alluded to in the previous paragraph, turnover is common these days. It is so common that job-hopping has become an expectation for some companies. This expectation should inspire concerned business owners to reward their hard working employees by expressing the value that they add to your team.

By appropriately expressing to your employees that their time and energy is appreciated, you develop loyalty, which in turn decreases turnover. Not only will you limit the amount of turnover that is taking place, but these trained and loyal team members will be able to pass on their hard earned knowledge and share their experience with others that eventually join the team.

When I first started my career, the owner of my company at the time came up to my desk.  I thought I was being fired and he said, “I just spoke to our biggest client about you.”  He told me she said I’m doing an amazing job and couldn’t be happier.  He then gave me a $100 bill and told me that he wants me to go out to a nice dinner with my girlfriend.  The feeling of appreciation plus the reward felt amazing to me.  It’s been 15 years since this occurred and I still tell people this story.

Personally, I believe in rewarding with something that’s going to get them excited and emotional.  For example, a $1,000 bonus to an employee is probably going to be used to pay bills.  However, how much more excited would an employee be if you told them, “I’m buying you 2 round trip tickets to Vegas and paying for your hotel for 2 nights?”  They’re both about the same price but a paid vacation has a lot more emotional ties to it than a direct deposit.

Years ago, I had several young women work for me and I knew they loved to shop.  Rather than running a sales contest where they’d win $500 on their next paycheck, the reward was $500 in cash and the day off to go shopping.  It was amazing how much more excited they were to come into work, get all of this cash and leave for the day with one another.

If an individual is clearly adding value to your organization, it shouldn’t be a question of whether or not you show them that they are valued in return. This does not necessarily mean outrageous bonuses or massive pay raises, but simply a level of pay that is aligned with their worth.

At the end of the day, higher wages and treating employees right will lead to significant benefits for the companies that provide them. Higher wages entice workers that are more productive and more capable, lead to lower turnover, reduce costs associated with hiring and training processes, and simply motivate individuals to work hard and be more productive.

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