The question of how much to pay an employee is always tricky. Pay too much and you could sacrifice your company’s bottom line, pay too little and you could see your best employees jump ship (for your competition, no less!)
The following are five tips from HR Morning News for developing a competitive salary structure that will give you the best of both worlds:
Assess your market:
The economic downturn saw a number of industries push pause on pay increases, but with the economy improving, salary growth is occurring across multiple industries and geographic regions. Therefore, if your company’s compensation plan is based on the trends in those leaner years immediately following the recession, it’s probably time for an adjustment. HR Morning News recommends regularly consulting the PayScale Index to keep track of quarterly trends in compensation by location, industry and job category.
Establish benchmarks for your job types:
While the PayScale Index is useful for establishing trends in your industry, you still need to have confidence that you are paying YOUR top employees the correct wage. HR Morning News recommends that your company engage in once-per-year salary benchmarking to identify employees who are at a high risk of turnover and thus base your decisions on where to allocate your labor budget.
Create a compensation plan:
Without a formalized compensation plan, your company may be missing an opportunity to structure its pay decisions in a way that support business goals, according to HR Morning News. They note that “as companies grow, the costs of compensation continue to rise, and without a formalized plan in place, companies often experience problems with pay inequities, employee retention, and engagement.” Therefore, it’s easier and more cost-effective to develop a compensation plan now and plan to alter it down the line as and when your company’s goals and financials change.
Identify pay inequities:
Don’t assume that your employees aren’t discussing their salaries with their peers – or that they won’t walk out the door when they learn that they are being paid less for the same job as a co-worker. There are a myriad of reasons for pay inequities, but the vast majority can be addressed if a company has – and frequently refers to – a formalized compensation plan.
Communicate Your Compensation Strategy
Once you’ve gone through the process of drafting a compensation plan, it’s important that you communicate this information to employees. HR Morning notes that “in theory, your compensation strategy should reiterate and support your business goals. So, it’s important to communicate to employees how their work aligns with the goals of the organization, and how their compensation reflects that.”