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How much are key employees worth?

December 09, 2008 12:59 IST

With the economy tanking and unemployment nearing 7 per cent, it's a buyer's market for firms lucky enough to be hiring. The challenge: landing loyal talent without going broke in the process--either by losing valuable hours rooting through piles of resumes or dangling profit-sapping salaries.

"A buyers' market doesn't mean that it's any easier," says John Younger, chief executive of Accolo, a Larkspur, Calif., staffing company for the software industry. "Hiring tends to consume more resources than it did before. You place an ad on Craigslist and get people bugging you for weeks."

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So what are key decision-makers really worth? Unfortunately, there is no one formula that transcends industries and business cycles. Tackle the problem in logical steps, though, and you can increase your odds of earning a solid return on that important player. Potential applicants can learn a thing or two from this process, too.

First step: Examine each department in your company and define all the required tasks and their value to your organisation. This will give you a basis for benchmarking compensation against industry standards.

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Specifically, figure out which positions have the greatest impact on overall performance, based on a variety of financial metrics--sales, earnings, return on capital and the like. Be sure to consider how certain positions affect others--poor performance in one area could be the result of problems in another. Then, rank each job in order of importance, based on these factors. In this environment, you might want to run this analysis on a monthly basis to ensure labor costs stay in line with business prospects.

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That's what Shawn Boyer does. Boyer, who runs Snagajob.com, a staffing firm that recruits hourly workers, uses a formula-based system to decide whether to add to his 140-person company. Over the next year, for example, Boyer plans to take on new employees only if his sales team hits certain targets--including monthly bookings and promises in the pipeline. If revenue falls short, he stops adding to the ranks. (If that doesn't stop the bleeding, he plans to cut bonuses, followed by pay freezes and, if things get really bad, layoffs.)

Next step: comparison shopping. There are a few ways to go about this. Benchmarking surveys from major human resources consulting firms like Mercer can cost up to $5,000, but you don't need to pay that much.

Comparison sites PayScale.com and Salary.com (nasdaq: SLRY - news - people ) sell compensation reports for as little as $20 a pop. And the Bureau of Labor Statistics provides salary data by industry for free online. Yet another option for executive-comp data: Look at the Securities and Exchange Commission filings by smaller, publicly held companies in your industry.

You might also try contacting key players at the competition and ask them what they get paid (they might be disgruntled enough to tell you). For further context, don't forget to ask all potential applicants to state current and expected salaries.

Providing health and other benefits to employees may seem be potentially crippling, but the cost of not doing it could be even worse. In this environment, offering even modest benefits could radically alter the quality of employees you can attract--and retain.

In late 2007, David Ingram, chief executive of Capital TechSearch, an IT staffing firm in Richmond, Va., choked down a 58 per cent increase in monthly expenses by offering health benefits and 401(k) plans for his 50 employees. Still, he says: "By offering benefits on day one, we were able to attract a totally different type of employee."

If cash-flow constraints are preventing you from offering a compelling (or even competitive) salary, consider granting talented candidates a stake in the proceedings--in the form of shared profits, stock options or even a slice of equity.

The more equity someone is willing to take in lieu of a two-week paycheck, potentially the more committed she might be to helping the company slog through the downturn.

Once you have a sense for where to start negotiations, you're ready to drum up some decent prospects. Look in-house first, especially if you've had or anticipate layoffs; hiring and firing within weeks or months can crush employee morale. Also, try to be as flexible as possible, adds Accolo's Younger. For instance, after a thoughtful analysis, he recently moved one of his recruiters into a technology development role.

Even if you can't afford to pull the trigger on an important new hire right now, keep resumes of all interesting applicants on file and stay in touch. It will save you time and resources when you're ready to add to the ranks again. Says Younger, "Now is the perfect time to be building your bench for the future."

Maureen Farrell and Lisa LaMotta, Forbes
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