You’ve overpaid for talent — what now?

After months of searching, you thought you found the perfect candidate to take your team to the next level. You staked your reputation on it and offered a salary the person couldn’t refuse. But after some time on the job you’re realising that the “rock star” isn’t living up to the salary you’re shelling out. So now what?

In addition to costing the company a lot of money, keeping an overpriced hire who’s not contributing at the level they’re being paid for can cause unnecessary resentment from lower-paid employees in the office, according to Mark Thompson and Benjamin Frost, consultants in management consulting firm Korn Ferry’s London office.

To rectify the situation and prevent an uprising in the office, try taking these steps recommended by experts:

Use bonuses to balance the scales. It’s all but impossible to lower someone’s pay after the fact, but you can withhold or grant bonuses to even the playing field.

Ideally, you would have negotiated with the new hire upfront to hold back part of their high salary to be granted when their performance reached the desired level. But if it’s too late to negotiate upfront, Thompson suggested withholding bonuses if you believe it’s warranted, or giving bonuses to other employees who are performing well but receive a lower salary than the “star”.

Let them go for nonperformance. You always want to give every employee ample opportunity to perform and prove their worth, but in some cases, you’ll find it simply isn’t working. Tim Sackett, HR professional and president of HRU Technical Resources, a contingent staffing firm based in Michigan, advised working with the employee to set mutually agreed-upon goals, ensuring they have the tools needed to meet those goals, and then holding them accountable to meet those goals. In the end, if those goals aren't met, he said, you need to move in another direction.

“This isn’t rocket science. We aren’t trying to put a woman on the moon,” Sackett said. “You hired someone at a high salary and expected high results. Those results didn’t come. You terminate them.”

Negotiate a severance package. If for some reason you don’t have solid cause to fire the overpriced employee or they’re a protected class, you can try negotiating a severance package with them.

“Most people know they aren’t performing at the level expected and will actually negotiate a severance package at a fraction of what you think,” Sackett said. “In their minds, they believe you’re just going to fire them, so getting a few months of pay on the way out is a win.”

A severance package will continue to cost you more money, he acknowledged, but it’s a tactic to get out of a bad situation and move on without having the threat of a lawsuit.

Learn from your mistake. You may have staked your reputation on this person and now that it’s not panning out, you might feel embarrassed or even angry. But you shouldn’t take it personally; interviewing is not an exact science, and nearly every manager has made a bad hire at some point. Plus, it’s not a complete loss, as long as you learn from it.

“One good thing that comes out of this is hopefully people involved in that sort of situation would only do that once and learn from it,” Thompson said. “The big danger, of course, is they don’t.”

In the future, you may want to rethink how you negotiate salary and consider holding back a portion of pay until the new hire is performing at the desired level. You may also want to consider tweaking the job description if it doesn’t reflect what is actually required to do the job.

Consider promoting from within. It’s also worth considering whether you’re overlooking what’s already in front of you. Hiring managers can sometimes have an unconscious bias against internal employees, but current employees or even someone from another department could be the perfect fit.

“Bring someone in from the outside and you’re really rolling the dice as to whether they’ll be a fit or not,” Frost said. “That takes for granted the person you already have who knows the organisation, how it works, and what you’re trying to achieve.”

Frost and Thompson pointed out the hypocrisy of companies who will deny a pay increase for an existing employee one minute, and instantly approve that same elevated rate in order to recruit someone from the outside the next minute.

“If they promote somebody, they shouldn’t get so bogged down in only giving them 5% or 6%,” Thompson said. “They’ve got to give them the market rate in their new promotion; the kind of rate they might give someone coming from outside, because otherwise, their internal people will move on.”

— Hannah Pitstick is a freelance writer based in the US. To comment on this article or to suggest an idea for another article, contact Drew Adamek, an FM magazine senior editor, at Andrew.Adamek@aicpa-cima.com.