- Setting employee salaries is very complex and can be a bit of a Catch-22. How do you know that the money you will be investing in them will bring value to your company? How can you know that you are remaining competitive?
- There are many resources in determining what you should pay your employees. From online sources to even asking your competitors, information is out there.
- Between location, experience and education, several variables can affect what your employees need or expect in a salary.
As your business grows and begins to hire employees, it's important to properly compensate your new and existing team members. While this seems easy enough, you need to consider several factors when determining salaries.
To get a better understanding of the best compensation practices, we spoke with HR professionals and hiring managers. They shared four key tips for determining pay structure within your organization.
1. Use outside resources.
When making salary decisions, it's important to get outside input. Tim Tolan, owner of The Tolan Group, suggested looking at websites like Salary.com, which can provide your company with detailed insights into how others in the same field and region get paid. Tolan believes a tool like this works best for businesses with more employees, as a mom-and-pop shop might not need such a detailed resource.
Speaking with recruiters is another way to gain insights into salary standards in your industry.
"I would highly recommend that companies consult the expertise of a recruiter, because we're infinitely involved in the compensation packages of our candidates," said Paul Harris, president of Global Recruiters Network Blackhawk.
Reaching out to knowledgeable people in the industry or utilizing online resources ensures that you aren't wildly guessing when setting salaries. Paying for a recruiter might not make sense for the smallest of small businesses, but growing businesses can find value in enlisting the help of recruiters.
Additionally, you can turn to other businesses in your area for advice. Harris also recommended speaking to competitors, assuming they're friendly, to receive advice on how they handle salary and how your business can set fair wages.
Bottom line: It's not a bad idea to seek out the advice of several different sources when determining salary.
2. Look at your past compensation packages.
Looking back at salaries in your company's history can shed light on what's a fair salary for certain positions. Have you seen high turnover in any position? This may signal a need to look at that job's compensation.
It may also signal a need to boost employee perks like paid vacation rather than increasing monetary compensation. While it's not included in their salaries, employees who go above and beyond their job duties can go out for a nice dinner with family or friends, and the company handles the bill. Small gestures like these build the relationship between managers and employees, which in turn improves job satisfaction and retention.
"You can offer additional PTO days," Tolan said. "Say, 'You did a great job. I want you to take next Friday off. It's on me.' That always builds a good culture … If we have someone that really, really, really does a great job, and we just had one last week, we'll give a night out on the town."
If you're a startup without a salary history, try enlisting the help of a mentor who's willing to share how they determine salary as a business owner.
3. Talk to your employees.
Speaking with your staff stands as the most effective way to ensure fair compensation. Looking through every salary website and company database doesn't do you any good if you aren't speaking to your employees. What do your employees want to be paid? What forms of compensation other than money do they desire?
By talking to employees, you begin to understand their perspective and can balance that with the budgetary restrictions of the company. You may find that employees don't want higher compensation but more recognition for their good work. To get to the bottom of people's desires, it's vital to speak with them frequently.
Some employees won't immediately feel comfortable discussing salary with their boss. But if you speak to them enough and build a relationship, eventually those walls will break down and you'll be able to lead transparent conversations regarding salary.
"I just think it's a matter of building trust," said Bob Cerone, CEO of Cognos HR. "It's a matter of not just doing it once, and then coming back a year later or two years later and doing it again; there's got to be some continuity."
Regardless of your findings, understanding how to pay employees fairly becomes significantly easier when you speak to yours.
4. Consider legal guidelines.
The law plays a role in how you pay employees. If your business has interns or part-time workers receiving minimum wage, it's critical to follow the minimum wage laws for your state. If your business grows to the point where it expands into a new state, this may lead to minimum wage workers receiving different hourly wages depending on where they're based. You want to stay up to date on compensation regulations to avoid potential legal consequences.
Additionally, there are laws in certain states that prevent employers from asking candidates for a salary history. With laws like this making it more difficult – or illegal, depending on the state – to ask what candidates currently make, it's important to steer interviews away from those types of questions. You don't want to be on the wrong side of a lawsuit because you weren't aware of legislation in your state.
By reading up on best salary practices and legal guidelines, you'll put yourself in a position to avoid legal trouble. If you're unsure whether your salary practices are legal, consider speaking with a lawyer or HR professional.
Finding the right amount to pay employees is never easy, especially for new business owners, but having honest conversations with employees and outside resources makes the process much less burdensome.
5. Location. Location. Location.
While some companies prefer to pay all of their employees the same regardless of location, it is important to understand that the demands for cost of living vary from place to place. For example, according to Salary.com, the cost of living in Los Angeles is approximately 42.6% higher than that of the national average. For this reason, you cannot expect your employees in larger cities with higher rent and mortgage payments to be happy where their money does not go as far as their peers in rural communities.
Gauge what other people in similar positions in the area are paid for their work. This will help keep your salaries competitive in the local job market so your employees do not look for higher pay with your competition.
6. Look at the employee on a case-by-case basis.
You should have a base for what your position will pay, but expect some of your employees to negotiate higher based on their experience or education.
For example, you might have two interviews with two different people who would be great for your company, and you want to offer both of them a job. One is straight out of undergraduate studies and had an internship with your company last summer. The other candidate is an Ivy League MBA with 10 years of experience at your competitor’s firm. Who do you think is going to be less satisfied with your entry-level salary package?
Education and experience play a huge part in the needs of salary. You can advertise a base salary for a position, but it might be wise to also say that salary is negotiable based on experience and education. You can have faith that they can bring value to your company without having to invest as much in training for them.