Don't Make This Mistake Unless You're Satisfied With Second-Rate Talent
A rate card is a rate or range of rates for a given position or skill set. Although it can be effective for some unskilled service categories, such as administrative/clerical, it is too limited for highly skilled or specialty positions. In these cases, a market-pricing mechanism, such as competitive bidding, would be more efficient.
A market-based approach to rates such as online competitive bidding provides a real-time assessment of the labor market, that is specific to the position and location, and takes into account specific skill sets, market demand, and the availability of the candidate pool.
But are rate cards actually preventing you from getting the best candidate you can afford? Unfortunately, it's possible. How? Let's take purchasing a car as an example. Cars have a general value. A Blue Book value for a Honda Accord of a certain vintage and condition could be worth say $10,000. But if the owner took good care of it, kept it in an indoor garage and regularly changed the oil, he may expect more. If the owner, however, didn't take care of the vehicle, only did maintenance when something failed, it would be worth less than that Blue Book value. Now, if a buyer looking for that specific car relies on the Blue Book and concludes he shouldn't pay more than $10,000, he will be missing out on the better-quality vehicle. The owner of the beat-up car will be more than happy to take that amount. And the client will be paying too much.
Similarly, if an employee, let's say an engineer, is very productive, he will expect more compensation in exchange for the extra productivity. It's extremely rare to find the perfectly average candidate that corresponds to the average in the rate card. The candidate who may have been fired from his last three jobs - due to punctuality issues or abysmal productivity - would gladly accept the average pay. Which means, once again, the employer will be overpaying. In some instances, the employer may find a gem in a quality candidate who needs to relocate, perhaps because a spouse is being transferred, and that employee may be willing to be paid less than usual. But, generally speaking, people know what they are worth. They know what the average market is. And they know where they stand in comparison to that average. People are willing to take more, but not less.
Rate cards force candidates into categories, averaging the talent. To return to our car example, if someone is looking for a four-door sedan, it will have its own "rate card". But if a buyer decides he wants a four-door sedan with 12 cylinders, the rate card no longer applies. Same thing with a company who needs an experienced developer with specialized skills. That type of candidate will not fit neatly into that rate card. It will be forcing this candidate into a different category that, again, may not accurately reflect his special skills.
Although it is possible to add elements to a rate card, the more it is changed the less it is a rate card and the more it becomes market-based rates. Why use something that isn't flexible? Market-based pricing's highly customizable quality ensures better value and a more suitable candidate.
Why are rate cards used at all? Historically, there has not been an effective, real-time mechanism to handle market based pricing and real-time bidding, so rate cards provided an alternate way that was better than nothing. But if you can use an efficient mechanism such as a vendor management solution, why not take advantage of it and reap the benefits?