What is the value of a given executive to your company? What should you be paying them for their contributions? What is that open position really costing you as the hours tick by?
One highly accepted model is that the individual should produce 5 times their rate of pay. This is a helpful guide when determining reasonable expectations.
- VTC: Value to Company (Hotel / Resort or Corporate position)
- LPM: Loss per Month
- LPW: Loss per Week
- LPD: Loss per Day
Here is the explanation of the ‘formula’ above. Suppose you have a position for which you pay $60K per year. According to the model, multiply by 5 to determine the value to your company $300,000 (60K/year x 5 = VTC ). Now, look at this position as if it were open.
Each Month that goes by costs your company $25,000 (VTC / 12 = LPM) What does it cost per week?
This opening or non-productive position costs your company $5,769.23 per week. (VTC / 52 = LPW) Cost Per Day? $1,153.84 (VTC / 52 / 5 = LPD)
Further, say the efforts of the individual filling this 40K/yr job contributed $250K/yr. Consider that—according to our model—they were underpaid by $10K/yr (250K / 5 = 50K). Conversely, if that person's contributions were $175K/yr, you were paying too much (175K / 5 = 35K).
This is simple arithmetic—but it's revealing. It proves that an open position is money down the drain, hour by hour. It is a good yardstick for comparing salary and productivity. It sheds light on the economic viability of a professional recruiter and no one is able to make this formula work for you like they are.
Experience has been our best teacher. Often, potential clients make two statements that serve to contradict one another. "We don't pay fees", and, "We're looking for the best possible candidate." Additionally, they'll say that advertising plays a major role in attracting candidates.
Consider the pie chart above. Assume that, on average, about 5% of the population are unemployed and reading your ad. There is another 10% in the category of 'mentally unemployed'. These individuals wish for something other than what they have. It follows then, that only 15% of the candidate pool will be looking at your ad. Is that good enough for you? Does the caliber of person you need exist within that small percentage?
There might be a perfectly acceptable candidate within 15% of the pie. Our expertise lies in the ability to reach the other 85%. These people are typically fulfilled in their current position and would be totally unaware of the opportunity you offer. If the goal is to find the best possible person, doesn't it make sense to draw from 100% of the talent?