Fair Compensation: How to Know What to Pay Your Employees

There is a lot of great talent out there waiting to be snapped-up by a company—maybe yours—that recognizes their skills and expertise. You interview people, find a couple you like and decide to offer them jobs. What do you pay them? It is one of the toughest decisions you have to make, especially if you are hiring a professional. Sure, you can cherry-pick today, entice people who are desperate for a job to come in for low wages. If you see your employees as commodities to be bought and sold and used up, then this makes sense. If, on the other hand, you see them as people who part of your team, whose efforts contribute to your success, than low-balling them vis-à-vis some straight salary scheme may not be the way to go. 

The fact is that employees are people who have their own lives and needs, and one of their needs is a stable financial base upon which to build and maintain their lives. No matter how bad the economy, if working for you does not provide that financial base, their attention can never be 100% on the needs of your business. They will take side jobs to fill the gap, or they will always be on the look-out for a better deal, making them temporary within your company. That may be fine with you, but when times improve, when the advantage once more shifts to the job seekers rather than those doing the hiring, you will find your workforce to be very unstable, which will cause you all sorts of other problems. Moreover, you will have given your company a reputation, not as a place where people can grow and prosper, but as a place that churns through people. This is not the best reputation to have when you find yourself competing for talent. If this is true of regular workers, it is doubly so for professionals, who are hired for their specific skills and who can easily take those skills to the highest bidder. 

No one is saying that you have to pay top dollar for talent, especially in this poor economy; but if a stable, lasting workforce with low turnover is your goal, you do need to pay enough for your employees to feel that working for you is worth it, to keep them from actively seeking a better deal across the street. This does not necessarily mean a high base salary. In fact, it is more effective to base pay on accomplishment with a number of soft benefits to keep up morale and address work-life issues thrown in for good measure. According to Human Resources consultant and author Susan M. Heathfield, your compensation plan should take into account the following elements:

  • Organizations need to develop a written compensation philosophy and direction, which should be reviewed by the Board of Directors (if there is one) and agreed to by your managers.
  • Particularly in an entrepreneurial, market-driven company, the compensation philosophy needs to include a method for grouping similar jobs for purposes of broad banding, since promotional opportunities are limited.
  • It should include a responsible, measurement system for awarding variable pay, with less emphasis on increasing base pay, and more emphasis on distributing gains via bonuses that reward actual goal attainment.
  • Goal attainment should be rewarded for both individual and organizational goal achievement to foster teamwork and eliminate the “lone ranger” mentality.
  • Real goal achievement is attached to outcomes or deliverables that are measurable or offer a shared picture of what success looks like. They should not reward checking items off a “to-do” list.
  • As the cost of benefits has increased, their place in a total compensation package has increased in importance. Shifting the costs of some benefits to employees is a last-option scenario. 

Even if you have a good achievement-based compensation system, there is a need for a solid base salary from which start. To find that, you can turn to one or more of the online salary resources to see what others in your area are being paid for the same or similar work. Salary.com, PayScale.com, CareerBuilder’s CBSalary.com are all free for you to use to determine salary ranges. You can also check the Bureau of Labor Statistics site at bls.gov

What you want is to be within a target range, somewhere the middle 50%, between the lowest salaries listed and the highest. For some applicants you will trend higher, depending on what they bring to the table, for others lower. However, you do need to be within the lowest-to-highest range. If the lowest salary listed for a given position is $40,000 and you only want to pay $20,000 straight salary for the same work, then you are taking advantage of that employee and if they accept—sometimes you just need the job—they know it and will not stick around once something better appears. Remember, your job applicants have the same access to information that you do. 

On the other hand, a $30,000 base in that same situation may be perfectly reasonable if, as Heathfield suggests, there is a compensation scheme in effect that gives bonuses and raises for meeting clear performance goals, both individually and as an organization. If that combination raises the effective compensation, along with soft benefits like flex-time and telecommuting that address the employee’s work-life balance, then it’s a win-win for both employer and employee. What could be better?