Starting Salaries for New Hires: How Much to Pay

by Courtney LeCompte on January 29, 2018

in Compensation Toolkit

31/365: Go Doughboy

What to Offer a New Hire?

Determining a starting salary for a new hire can be difficult. Offering a starting salary too low may exclude good candidates or may attract someone unqualified for the position. A starting salary too high may prove unsustainable. While initial pay setting can follow an established process to produce a baseline figure, additional discussion and input from stakeholders (job candidate, recruiter, manager, etc.) may result in adjustments to the final salary offer.

Pay Setting – Entry Level Candidates

Most new hire pay begins with the assumption that the position has established minimum qualifications, or job related requirements, that must be met for a candidate to be considered for the position. “Entry level” candidates commonly meet the minimum requirements of the position, with little to no additional relevant experience or education. These individuals are generally offered the minimum pay of the salary range. Exceptions include advanced qualifications outside of the minimum qualifications, or short market supply for key skills that the candidate holds.

Pay Setting – Experienced Candidates

The process of new hire pay setting for experienced candidates is more complex and typically includes a total experience assessment followed by a salary growth calculation. The total experience assessment includes a review of the candidate’s education and an analysis of a candidate’s work experience weighted by the consideration of time, significance, and recency. Typically, when a candidate holds an education level above the minimum qualifications for a position, a ratio of two years of relevant experience for every one year of formal education can be used. This ratio assumes that knowledge obtained in an academic environment is acquired more rapidly and in greater variability than on-the-job knowledge.

The total experience is then compared with the position’s minimum qualifications to determine the number of years of job related experience above the minimum qualifications. This figure, along with the position’s minimum entry salary and an average annual salary growth percentage, are used in a salary growth calculation to determine an initial pay range. Once the range is calculated, internal and external equity are reviewed, which may adjust the initial salary range.

Salary Growth Calculation

The salary growth calculation estimates salary growth that the candidate might have experienced if he/she were originally hired at the entry level minimum pay range. Pay setting using a salary growth calculation assumes an average annual salary growth percentage and performance level over the same period of time. The calculated salary range represents the job valued internally, relative to the established salary structure for the position.

Example: Salary Growth Calculation

$40,000  X  5-6 Years  X  3%  =  $46,370-$47,762
Minimum
 Salary Range 
 Relevant Experience 
Above Minimum
Qualifications
 Average Annual 
Salary Growth
 Initial Salary Range 
Recommendation

 
After calculating an initial salary range, consideration must be given to peers at the same level and role within the organization. If the salary growth calculation is performed correctly, it should be consistent with the pay of similarly situated peers and emphasize internal equity.

Considerations

Typically the appropriate initial salary range recommendation should not be set higher than the salary range midpoint for a variety of reasons. The salary range midpoint generally represents the pay level of a full performance employee. Setting a new hire below the midpoint recognizes that the new candidate entering an organization will need time to attain a level of full performance in the position. Employee morale issues may ensue if a new hire is brought into a position at the full-performance pay level but cannot immediately contribute at that level.

The average annual salary growth can be determined by the type of work, discipline, external market trends, or a combination of factors, and should be reassessed annually. Market sensitive jobs or a candidate with progressive experience or performance may require a higher average annual growth percentage when calculating an initial salary range recommendation.

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