Hiring During a Recession – Beware of the “Low Bid”
There is a common saying in the construction contracting world - "Beware of the low bid." This bit of advice also serves well to managers hiring new employees during sluggish economic times such as theses we seem to be in.
While we won't know for certain that we are currently in a recession for some time, many economists feel that we are headed towards or currently in a recessionary period of the business cycle, and the analysts and traders on Wall Street are certainly behaving as if this were the case.
So what does this have to do with the warning to beware of the low bid?
Let me explain… during a recession unemployment typically rises, companies cut back on hiring and limit growth, and as such job seekers typically find it more difficult to secure gainful employment. When an individual has been out of work for several months it is likely that he or she will be willing to accept a position for much less than what they were previously earning or that their combination of education, experience, and personal skills would demand during better economic times.
To appear more attractive as a candidate some of these individuals may indicate a desired salary that is less than the going market rate for the advertised position. For example a mid-level accounting position that requires a CPA and five or more years experience might typically pay $55,000 annually. However a qualified job seeker who has been out of work for several months might indicate in their application or cover letter that he or she would be willing to work for $45,000 annually – almost 20% lower than the fair market value for such a position.
While a qualified candidate willing to work for $10,000 less than the company was expecting to pay might be an exciting possibility to managers under continuous pressure to accomplish more with fewer resources, hiring such an individual – let's call her Sue - can have serious drawbacks and negative consequences.
Economic recessions are relatively short in duration – averaging just 11 months in length over the past five decades. When the economy begins to pick up speed companies will resume expansion and look to fill more jobs. As more positions in the accounting field become available, Sue may no longer be satisfied earning $10,000 less than others with her qualifications are likely making. In fact there is a very good chance that Sue will become quite unhappy with her current salary… and hey, who can blame her!
So what does Sue do?
If Sue enjoys her position and the organization she works for she will likely ask for a raise to bring her wages up to the market equivalent for her position, experience, and qualifications. If Sue's employer recognizes the value of Sue's experience and her qualifications they may well be willing to give her the raise she asks for and Sue will stay where she is at.
However many organizations may not be willing to grant such a large increase in pay for various reasons including corporate policy on raises or budgetary constraints. If this is the case it is reasonable to expect that Sue will leave her current employer and seek out an organization that is willing to pay her what the employment market dictates she is worth.
Sue's departure from her underpaid position will likely have several negative consequences for her employer. First is the cost of employee turnover. Depending on the position, estimates place the "hard" and "soft" costs of employee turnover to average ½ to 5 times an employee's salary and benefits. Even at the low end of the turnover cost spectrum Sue's departure will likely cost her employer at least $20,000.
Her resignation may also "rock the boat" and convince other employees to take a look at their pay and consider employment elsewhere if they feel they are not being adequately compensated thus causing even more costly turnover. Employee turnover also hurts employee morale, reduces productivity, and can diminish the level of service provided to valued customers and clients.
This is a classic example of being penny wise and pound foolish. An initial savings of $10,000 a year has likely cost Sue's organization several times that amount in turnover costs, lost productivity, and diminished customer goodwill. While Sue may be partially to blame for knowingly accepting a job for less than she was worth, it is difficult to find fault with somebody for trying to provide for their family and make ends meet. Ultimately the blame rests with Sue's employer for not recognizing something that was too good to be true and for not being flexible enough to provide the pay that the Sue's position demands.
The lesson to be learned should be clear – be weary of hiring a candidate for far less than their skills are worth on the open market. Economic times are likely to turn around and what was once a "great deal" can quickly become a costly mistake.
Now go Maximize Possibility!
Other blog posts you may be interested in:
- Four Tips For Hiring During an Economic Slow Down
- Five Tips for Improving Training and Development During a Recession
- What Can I do to Thrive in this Economy
- Personal Accountability Training: The One Employee Training Program You Need During a Down Economy
- A Slow Economy Can be a Strategic Opportunity
Chris Young helps organizations Maximize Possibility through talent management, cultural transformation, and strategic intervention. Bring Chris in today!
