Negotiating Starting Salaries for Top Performers

If you’re in the market for a yacht, you’ll probably be talking to an “A player” salesperson at MarineMax, Inc., the nation’s largest recreational boat retailer, with 2,000 employees in 85 locations.

    MarineMax’s record-breaking results for the second quarter of 2006 showed revenue up 25.8 percent to $1 billion, same-store sales up 14.4 percent and net income up an enviable 22.5 percent. During the past five years, its stock price has soared 330 percent.

    These high growth rates translate into heavy hiring, but MarineMax does not recruit from competitors.

    “It would just recycle mediocrity,” says Jay Avelino, vice president of team development, the company’s chief HR executive. Instead, the company only recruits what it considers to be A players—almost always from outside its own industry—to meet new growth targets.

    MarineMax upgraded guidance for the rest of 2006 based on second-quarter results, but it needs to fill 130 open positions ranging from sales consultants and administrative assistants to marine service technicians and parts managers. With a formal topgrading policy in place and a mandate to interview only A players, MarineMax relies on a complex process to screen and select candidates and negotiate starting salaries for a constant flow of new hires.

    But Avelino refuses to throw money at A-player candidates. Negotiating their starting salaries centers on tapping market data and pushing intangibles.

    “Under our topgrading policy, an A player is in the top 10 percent for that position across the galaxy, but at an appropriate compensation level,” he notes.

    MarineMax’s topgrading process begins with psychometric testing, reference checks and an initial interview to eliminate any candidate who is not A-player material.

    “We may start 10 candidates through the process, but end with only one or two who go on to the final stage, which is a four-hour chronological in-depth structured (CIDS) interview,” Avelino reports.

    “Top performers command higher rates of pay,” he says. “We pay more than our competitors, but A players are also looking for intangibles such as challenging work and advancement opportunities.”

    The company requires candidates to provide a full salary history and then uses salary surveys and information about the markets to shape the offer. To avoid high fixed costs, the company relies on performance pay programs and may negotiate guaranteed performance bonuses for the first year to lure A players.

    For example, for a store manager, who is responsible for P&L at a facility where revenues range from $10 million to $50 million, MarineMax offers base pay of $50,000 to $125,000, typically about $75,000. Bonuses based on store revenue and pretax profits boost total cash compensation up to a range of $90,000 to $200,000.

    “To bring an A player on board, we model total compensation for the candidate and we may guarantee a performance bonus of a certain amount for the first year, regardless of results,” Avelino reports. “Also, we may offer stock options, which are uncommon in the industry. We are at the top of the food chain, so candidates know they are looking at significant upside.”

    A players for service technician positions are pulled in with a guaranteed opportunity to bill out a certain amount of work and increase their hourly rate by obtaining additional credentials. “A-player technicians recognize this as a job that will pay well,” Avelino says.

    MarineMax’s standard package includes health benefits, a 401(k) plan with an employer match, an employee stock purchase plan and an attractive discount on its boats. Avelino remains confident in the company’s ability to attract the talent it needs without ratcheting up fixed labor costs.

False positive
    Survey results for 2006 starting salaries captured headlines earlier this year when the National Association of Colleges and Employers reported 2006 increases averaging 5.4 percent for new accounting and engineering graduates. But a closer look reveals that the 2006 average starting salary of $50,892 for new computer science graduates is 3 percent below the $52,473 average for 2001 in nominal terms. If the current average starting salary is adjusted for inflation, it is 16 percent below the 2001 level.

    New accounting degree graduates are currently commanding starting salaries that average $46,188, 5.4 percent higher than last year, but in inflation-adjusted dollars, the 2006 average is only 1.2 percent above the average for 2001.

    MarineMax fills positions in high-demand fields such as accounting with three-day “speed dating” programs that use mini-interviews to quickly screen large numbers of applicants. The company’s May 2006 round of “speed dating” for accounting candidates netted 40 applicants for 11 positions. The company hired five applicants and is still processing others.

    “We have not felt the need to use signing bonuses,” Avelino reports. “For all positions, we look for ‘water genes’–-candidates who are attracted to the boating industry and bring that enthusiasm to the job.”

    Sixty-five percent of employers are offering signing bonuses for IT positions, according to a Mercer Human Resource Consulting survey of 1,350 employers. Almost half are using signing bonuses for sales and marketing and accounting and finance positions. Thirty-six percent of employers are offering them for engineering jobs.

    Tighter job markets for some positions have spurred the use of signing bonuses and encouraged job candidates to raise their demands for higher starting salaries. In addition, the relatively recent availability of online salary data has boosted starting salary expectations for candidates, who may overestimate the relevancy of the data for the particular position they seek.

    Career counseling Web sites encourage job applicants to use various online salary calculators that provide aggregate data. Candidates may enter salary negotiations with information that does not reflect the highly specific geographic and industry considerations that determine wage levels.

    Media reports about “talent wars” also feed higher salary expectations, but employment growth for the first five months of this year averaged only 108,829 jobs per month, well below the estimated 180,000 per month needed to absorb new entrants. Rising interest rates, higher inflation and stock market volatility could easily snuff out any significant job growth in the second half of 2006 and mitigate any upward pressure on starting salaries.

Selling intangibles
    Although MarineMax successfully leverages variable compensation and intangibles to attract A players, most companies need to do a better job of selling nonmonetary rewards to job candidates, says Tom Johnston, president and CEO of SearchPath, a talent acquisition firm headquartered in Cleveland.

    “It’s crucial to identify the candidate’s hot buttons, which may be compensation, lifestyle, location, opportunity or benefits, depending on the candidate’s specific situation and background,” Johnston says. “If location is a key factor, for example, you can leverage that in salary negotiations.”

    At SearchPath, a managing partner conducts the negotiations for the employment offer between the hiring company and the candidate, including the starting salary.

    “Negotiating the starting salary is tough because there are no rules or guidelines,” Johnston notes. “The key is to understand the ultimate goal, which is to hire the best candidate.”

    Candidates should state their current total salary and bonus and what they are looking for above that.

    “If a candidate will not report this information, the employer has every right to end its consideration,” Johnston says.

    The employer will usually need to go 5 percent to 10 percent higher, or more if the cost of living in the location for the new position is higher.

    Johnston advises employers to be open and aggressive in determining whether a candidate is worth bumping up the base salary offer. Employers may be reluctant to set a precedent by offering a higher starting salary, or they may be working within financial constraints.

    “Put all of the pieces of the process together before you open compensation issues,” Johnston advises.

    He also recommends that employers bring other factors into play, such as flexible hours, a performance and salary review after six months, additional weeks of vacation and flexibility in the start date.

    “These techniques are usually successful because by the time the company and the candidate reach the compensation issue, there is already an emotional component to the relationship,” Johnston says. “The employer wants the candidate, and the candidate wants the job. Once you have this commitment, you can almost always close the deal. We suggest offering a leveraged compensation plan with a very high upside.”

    Some employers may be put off if a candidate becomes particularly aggressive in starting salary negotiations.

    “But we remind the hiring company that if it hires the candidate, that candidate will be negotiating with this same aggressiveness for the company in the future. The same skill sets that a candidate uses in the hiring process will be brought to the job.”

    Johnston also notes that companies are often too narrow in their idea of a perfect candidate.

    “Don’t eliminate a candidate based on some rigid statistical criteria such as grade point average,” he advises.

    Other common mistakes including initiating salary negotiations too early in the hiring process and low-balling candidates even when there is a good fit.

    “The key is to make the right hire, and there are many elements in reaching that goal that are at least as important as compensation,” Johnston says.