Most people assume the most difficult part of a recruiter’s job is finding the best candidates. However, any recruiter worth her weight has an extensive network of active and passive job seekers to contact, a deep pool of contacts to pull from, and expert resume scanning skills. (Hint: It helps when candidates create top notch resumes.) In reality, the real work for a recruiter begins long before he opens his computer. A recruiter’s toughest challenge begins the moment he sits down with the client to hammer out the details of the job spec and the compensation.

There’s no shortage of research outlining the negative effects of underpaying employees: lack of motivation, high turnover, and general job dissatisfaction, to name a few. Conversely, overpaying employees brings with it a whole host of other problems: discouraging the right kind of turnover, entitled employees, and being bound to a high salary.  So how is an employer to determine a competitive, reasonable salary to offer that will attract A Players and not break the budget?

5 Things to Consider to Avoid Low-Balling Top Talent

1. Supply & Demand in the Market: Across the board from tech to finance and from manufacturing to retail, the freeze that kept hiring stagnant in recent years is lifting, increasing demand. In addition, the post-recession supply also continues to climb. It’s quickly becoming a job seekers market and professionals are no longer sticking around in jobs they don’t enjoy, nor are they making lateral transitions. The supply is demanding more. However, companies are looking for not just anyone to fill open roles. They want the cream of the crop to rise to the top… of the candidate pool. As a result, employers who want to draw Top Talent to the negotiating table must offer the competitive compensation packages job seekers are demanding.

2. Supply & Demand in the Industry: Some industries bear the burden of offering higher salaries because their products or services are more complex. Is your industry one of these? If so, the talent you are looking for expects to be paid at a premium. Budget accordingly and be willing to offer a competitive package. If your industry is less specialized, that is not a license to low ball potential hires because, at the end of the day, you want to attract the highest quality candidates they can afford. In the end, knowing what an industry offers is just as important as knowing the latest technologies and high-demand skills.

3. What are your friends doing? Identifying prevailing market rates across industry and role is an important step in designing a competitive compensation plan. In today’s market the candidate you want is typically entertaining multiple offers. Don’t lose them to your friends or your enemies. Read the latest salary surveys and government reports to make sure your compensation package is up to date and competitive. Lastly, reach out to A Players and ask. This might be your most effective strategy.

4. Location, Location, Location: You don’t have to spend hours watching House Hunters to know that the cost of living is significantly cheaper in Waco, Texas than San Diego, California. You can bet your bottom dollar, that lower cost of living is reflected not only in the price per square foot of a new home, but also in the average salary. The same relationship between cost of living and compensation can be found at the other end of the spectrum. For example, someone in New York will earn a salary 35% higher across the board regardless of level. Keeping abreast to several factors will help determine a reasonable salary for your location: Where do most of your employees live? Do most rent or own? What is the average rent? What is the median home price? How do your employees commute to work? The answers to these questions will be a key factor in solving the salary equation.

5. Have you left room for growth? All employees are looking for opportunities for growth in both role and compensation. In fact, they expect it. While offering incentives such as stock options and bonuses may help you get those A Players in the door, you will not be able to retain your valued staff if they are already at the top of their salary range in year one. In a recent study conducted by CareerBuilder, 70% of employees reported that increasing salaries is the best way to boost employee retention. If the expectation of responsibility and production increases, the expectation of compensation does as well.

To quote one of TurningPoint’s own recruiters, “If you pay peanuts you get monkeys.” Attracting and retaining top talent is not rocket science. Offer employees an exciting, challenging job with clear expectations and measurables, potential for growth, a solid team to work with, AND a competitive compensation that reflects the skills they have, the work they do and the value they bring to the company. Now that’s not so difficult, is it?