Q&As: Weighing Employee Experience vs. Ability

Q: When should a new employee receive his or her first raise?

A: For entry-level positions paid on an hourly basis, you might want to consider a small increase about 90 days after the employee has been hired, if he or she has performed to a satisfactory level. People in these types of positions tend to be transitory and are less likely to wait six to 12 months for their first review.

For professional positions, review salaries after 12 months of employment or during the next company-wide annual review period. However, if the company’s annual review period is within three or fewer months from the employee’s start date, review entry-level professionals six months from their start dates, and senior-level professionals during the succeeding review period, even if that is 15 months away. Always inform a new employee when his or her first review will take place. If that review is scheduled for a time frame that exceeds one year, take that into consideration when determining a starting salary.

Q: How do you weigh experience versus ability?

A: Take into consideration a person’s current ability to do the job, your confidence in that person and his or her abilities, and how much, if any, additional experience will increase the person’s ability to perform well. For example, if one person has one week of experience collecting change at a tollbooth and another person has 10 years of experience in the same position, it is doubtful that these different experience levels will significantly decrease or increase either individual’s ability to perform satisfactorily. However, if one person has one week of experience as a credit manager and another has 10 years of experience, then there will be a major difference in their ability to easily handle their jobs.

Q: How do you weigh seniority versus ability?

A: This is a hot-potato issue. Some freshly minted MBAs may feel that raw ability is the only criterion that matters in determining wages. Many employees, however, feel that seniority should be rewarded.

Bloated labor costs can become a problem if you give wage increases based on an employee’s increasing seniority. And some companies have gotten hit with discrimination suits when they have sought to cut labor costs by firing older employees with very high seniority-based wages.

I think it is easy to underestimate how much seniority can affect ability. For starters, the more seniority someone has, the longer he or she is likely to stay in the future. Turnover is expensive, and not just in the obvious time and money in the hiring process. For example, new hires from the outside may have good “book” understanding of the sales techniques used in your industry but haven’t learned the nuances of selling your particular product. They may have established customers, but those customers don’t associate them with your product.

In a nutshell, pay on ability, not seniority. But do keep in mind that seniority can, in ways both subtle and not so subtle, positively affect ability.

About Bob Adams

Bob Adams is a Harvard MBA serial entrepreneur. He has started over a dozen businesses including one that he launched with $1500 and sold for $40 million. He has written 17 books and created 52 online courses for entrepreneurs. Bob also founded BusinessTown, the go-to learning platform for starting and running a business.