Homes and Salaries—The Market Sets Value, Not You…

houses-made-of-money

People say that buying a home and changing jobs are two of the most stressful events in your life. I agree, and I think it’s because both involve perceptions of value and price.

Here’s a quick story. After eating in, brown bagging, and drinking home brew instead of Starbucks for months, my wife and I somehow convinced a bank to give us a mortgage for our first house. Luck and the market helped us, and five years later, we were in a good position. At the time, the market where we lived was hot so we made an offer on a larger house, confident that we could get out of our first home with a good profit.

Appraisers, real estate agents, neighbors and parents offered opinions on setting the list price. I was inundated with data, comps, and listing histories. The experts kept telling me, “Your house is worth x dollars,” so we listed at that price.

On Day One, we received a slightly lower offer. “Look how brilliant we are,” we all thought. But we also thought the house was “worth” more, so we countered, thinking we could get them closer to the home’s value. Or at least our perception of the value.

We never heard from that buyer again. Ever.

And for a few long months, we had two houses, two front doors, two mailboxes and two mortgages. A few double payments later, when a guy finally offered me a contract for the same price we rejected on Day One, I could have kissed him. Hard.

And I learned a very valuable lesson. Whatever you are talking about, it’s not worth anything until someone will write you a check for it. House, car, blog or career—what you think it’s worth matters less than what the market thinks.

This hits home when you meet the candidate who has a distorted view of his compensation, typically because he is overpaid in his current role. Just like when I sold my house, he has a perception of his career worth, and it will drive what he needs to make a career move.

Keep in mind, however, that not all overpaid candidates are the same. In my experience, there are typically three types:

The Realist–knows she is overpaid, feels lucky and manages her life in such a way that she can take a step back in compensation for a great opportunity.

The Handcuffed–knows she is overpaid but feels stuck and struggles with stepping back in total compensation.

The Clueless—is convinced she is worth every penny she is being paid and cannot understand why no one else in the market agrees with her.

As a Talent Acquisition professional, you can work with the Realist, because she’s easy to manage, if your opportunity has more to offer than just cash money. I have wasted a bunch of time on the Handcuffed—many say they’ll leave for less money, but end up trying to prove they really are worth their current comp package. Finally, just run away from Clueless as fast as you can.

With salary freezes over the last few years, lots of people coming on the market will think they are underpaid, but what they think unfortunately does not matter. When someone cuts them a check, then they know what the market says they are worth.  Houses and careers–the market’s in charge, not you.

FOT Background Check

RJ Morris
R. J. Morris is a talent acquisition/staffing director based out of STL with McCarthy Building Companies, a multi-billion dollar national firm. Like many others in the FOT clan, he's a sports nut who can endlessly draw the parallels between athletes, sports and the talent management game. I know, I know, as if we needed more of that.  He has 7 years of practitioner experience leading talent acquisition efforts in corporate HR and another 7 years in leadership roles on the agency side, so he gets both sides of the desk.  Talk to R.J. via emailLinkedInTwitter...

10 Comments

  1. Dwane Lay says:

    Great post, RJ. The reality of home sales is a great analogy.
    So the question, as I see it, is how to those job seekers find out what they are really worth, short of getting the check? Every comp person I’ve known has a deep loathing for salary wizards that tell people what they are “worth,” yet they have a tool to tell them what someone should be paid. It always seemed a bit hypocritical, as the real issue seems to be which database is being used. And, I suppose, the knowledge to interpret the results, but with most online salary calculators, there’s not much interpretation to go through.
    I’m interested in what the FOT crew thinks is the right approach to help those applicants understand their market value. This seems like it would be a great benefit to the recruiters trying to close out a job.

    Reply
  2. Gina says:

    I have personally seen a case where the candidate is slightly under compensated at their current job which starts the hunt for something that is closer to the current market rate. They find an opportunity that would require relocating (to a hire cost of living area) & the new employer is trying to change the current role from part time to full time. They want full time work & an Star candidate but don’t want to pay what the market is paying for the role (not even 50% of what the person down the road is getting for the same job) The offer ends up being so insulting & after 4 months of trying to entice this candidate, he walks & they end up with a part time role again. They wanted a whole lot for next to nothing. I come across employers like this all the time.

    Reply
  3. Implanthr says:

    Invite you to read some thoughts on Employee Valuation at http://implanthr.wordpress.com/2010/08/11/employee-valuation/

    Reply
  4. R. J. Morris says:

    Dwane—
    Thanks for reading and commenting, and thank you for understanding the limits of how much can be covered in one post. Stay away from online calculators…as you note, they are, by nature, overly simplistic.
    In my experience, this is where having a trusted network in the industry pays off. You need to gather data from multiple sources. Alison Green had an article at US News with good advice, including asking professional organizations and agency recruiters. Reputable, industry specific agency recruiters are great resources of comp info. They will be very direct in telling you where you fit in the market. Her whole article is here http://bit.ly/jrkd7p.

    Reply
  5. R. J. Morris says:

    @Gina One thing about the market–it includes idiots.

    Reply
  6. Anonymous says:

    RJ,
    “When someone cuts them a check, then they know what the market says they are worth.”
    In some senses, I think this statement totally negates your entire post. You go on about overpaid employees, but then say they are worth whatever they can get someone to pay them. Those are contradictory statements.
    Your statement could be true if it applies to an unemployed person hung up on what they were previously paid. Yes, they are only worth what they can actually get someone to pay them.
    But for a prospect who is currently employed? He knows what his worth is. If you want me to switch jobs, you have to offer a “package” that I value more than what I have now. And when I say “package,” I mean *everything*: salary, benefits, quality of life, stress levels, commute, stability, everything. And because my employer gets top marks in benefits, QOL, stress levels, and commute (not so much stability) if you want me to take a pay cut to come and work for you, odds are you can’t match the great things my company offers and you will have to compensate me for that.
    One key to closing a business transaction is to figure out how motivated the other party is. If they’re desperate and you catch on, you win. If you are, and they know it, they do.

    Reply
  7. R. J. Morris says:

    @Anonymous–Thanks for reading and commenting. Good points. One question: You said that: “But for a prospect who is currently employed? He knows what his worth is.” I think I would say that he only knows what one employer is paying him, which is fine if he never leaves. Once he leaves, the market then weighs in on his worth. In my example, I could live in my house forever, with my bank and I thinking it was worth what we agreed to when I bought the house. Once I go to market, that becomes less important. Do you agree?
    In regard to benefits other than money, I totally agree with you. The benefits of working for a great employer contribute to the value you place on the role. Often, this is independent of cash, and you are right, that plays a huge role in the decision-making process.

    Reply
  8. Anonymous says:

    RJ,
    Trying to work with your house analogy here: If you plan on living in your house forever, and you’re happy with your mortgage payments, then I guess the valuation of your house doesn’t really matter to either party. Just like an over-paid employee who is happy where he is at.
    However, if your house is over-valued, and you want to leave, then one of two things happens: You default on your mortgage, and your bank forecloses. The second is the bank agrees to a short sale. Neither situation is good for either party.
    Specifically with regard to your post, however, I’m trying to understand the exact context of the situation. When you are in conversations with these overpaid employees, what is the context? Are they coming to you, telling you how badly they want to leave no matter what? In this case, their worth is whatever they can get someone else (you) to pay them.
    OTOH, are you approaching them and telling them that you have this great offer but they’ll have to take a pay cut? That’s like you cold-calling me in an attempt to buy my house, but then telling me that I overpaid for the house and you’ll only pay me “market value”. You and I both know that won’t fly. You want my house, you pay me on my terms. You want me to come and work for you, and I’m happily employed? Same thing. It doesn’t matter what “the market” thinks I’m worth, it only matters what you and I can negotiate.
    In your example, I think the house analogy works out quite well. There is such thing as “market value” but the exact closing price is a function of the motivation of specific parties.

    Reply
  9. the question as I see it, is how they are job-seekers find what they really are, get a quick review? A draft of each person that I felt a deep disgust and attendees pay people what they are worth, but they are a way to let them know that someone has to pay. It has always seemed a bit hypocritical, because the real problem seems to be that the database is used. And I suppose the data to interpret the results, but most calculators online payday, not a lot of interpretation through.

    Reply
  10. Rennison says:

    Good post..There is a good information you provide for the market value of the home..

    Reply

Leave a Comment