Throughout my years in the talent acquisition and executive search industries, I’ve come across countless clients who pride themselves on refusing to pay market rates for in-demand talent. Regardless of whether their companies are hiring for high-level IT candidates or seeking skilled hourly laborers, their mantra remains the same: “Let’s underpay below market so we can save money on staff, overhead, and benefits costs.”  

What these executives fail to understand is that this hiring approach can have colossal implications on their business’s bottom line. In the long run, those who choose to follow the “underpay” mantra almost always end up increasing their overall talent-related costs by up to several times more than those who simply hire their workers at a market competitive wage that aligns with their skillset.

Here are some reasons why paying employees fairly at the start is the more cost-effective choice that employers should make:

You get what you pay for

In paying below-market wages, the people willing to accept those jobs are often those who may have been rejected by other employers for poor performance, lack of ideal skillset, or a hidden interpersonal issue. Hiring the wrong fit for a particular role can result in rapid turnover—and the need to replace the person will almost always arise at an inconvenient time. 

What is the Cost of a Bad Hire?

Avoiding employee turnover

One of the most common reasons why workers seek new positions is to earn a better salary and set themselves up with greater financial stability. If your employees are being underpaid and a prospective employer approaches them with a more lucrative offer, they’d be foolish to not put some serious thought into taking the job. And as the giant tsunami of worker turnover currently sweeps across the U.S., these types of higher-paying employment offers are becoming increasingly common as companies scramble to find top talent. Organizations can lock down both their most valuable existing and most promising new employees by proactively providing them with a fair salary.

Learn how to prepare for post-pandemic job turnover.

The hidden impact of employee exits

If your organization is stricken by the dreaded turnover wave, the departure of valued resources can have a detrimental impact on aspects of your business like your employer brand, workforce productivity, employee engagement, company morale, product/service quality, and customer service, among others. From a financial perspective, constant turnover can strain your HR and TA teams and add thousands of dollars in recruiting and training costs to your bottom line. If one employee takes a new job that pays them a fair market wage, it shouldn’t come as a surprise to see others begin to explore a similar opportunity. That’s why compensating your employees fairly is the key to maintaining a workforce that is highly skilled, unwaveringly loyal, and fully satisfied with both their role and their pay.

Studies show that the cost of turnover can range from 40% to 400% of an employee’s annual salary. Discover more about the hard and soft costs of employee turnover.

Word of mouth impact on poor recruiting results

In today’s red-hot recruiting market, metrics like time-to-fill and cost-per-hire are of increasing interest to companies across the nation. Being able to attract and find top-performing, qualified workers to hire without having to break the bank is of the utmost concern to businesses emerging from the pandemic—regardless of the candidate’s job type or industry. But without being able to offer prospective employees a competitive salary, these all-important recruiting results will undoubtedly suffer. Companies need to be aware that the lack of an attractive salary and benefits package will scare candidates away. Once the word of mouth impact begins to brand your organization as paying below market rate, the results may be detrimental to your recruiting success. Not only will your ability to attract and retain top-tier talent diminish significantly, but you will become a target by your competitors seeking to hire away your best talent.

Increased recruiting and onboarding timelines

Let’s say one of your most productive employees in a value-driving role decides to leave your organization after being presented with a higher-paying job opportunity. Is your company ready to replace this high performer quickly? Are your internal recruiting teams pipelining well in advance of future needs? Or are you choosing to reactively recruit and starting from scratch each time a new position opens up? If you utilize pipeline recruiting, you’re well-positioned to fill the vacancy quickly. But companies that are reactive recruiting will experience talent shortages, causing their business to suffer.

According to SHRM, it takes an average of 68 days to hire a new employee for a white-collar position—and this timeline is often significantly longer when seeking candidates for executive-level roles. Beyond hiring the employee’s replacement, you should also be prepared for a minimum onboarding period of three months until your new hire is fully acclimated and up to speed with their position. This lost productivity and subject matter expertise can be crushing to any business, so don’t let it impact your organization.

Need an interim leader to fill in for an untimely executive departure? Learn more about the value of interim executive placement services.


Rather than being short-sighted—or as the saying goes, “penny wise and pound foolish”—employers should establish annual, geographically aligned compensation strategies to remain market competitive. Doing so will help to improve employee morale and culture, reduce turnover costs, and improve recruiting and onboarding metrics. In addition, this approach will minimize the negative impacts of turnover on your business performance, your employment brand reputation, and your client retention efforts.  

If there’s one thing we’ve learned from this pandemic, it’s that all employees—especially top performers—need to be appreciated. Be sure to apply this approach to your organization to improve your business results through the optimization of your talent strategies.

Learn how your organization can drive an improved workplace culture

This blog was written by TalentRise’s Senior Vice President Carl Kutsmode.