Don’t use guesswork when figuring out how much to pay your employees. You need a comprehensive, long-term plan to figure out a talent strategy. Here’s a checklist to get started on creating a strategy:
- List the job responsibilities, duties, required skills and experience of every role to determine the value each job brings to your firm.
- Look up what salaries your competitors pay for similar roles. By researching, you’ll get a feel for what skills, experience and qualifications you should expect from applicants. You also need to determine whether your company can sustain the salaries in the long term.
- Set a minimum and maximum salary for each role. The minimum is the ideal salary that you’d like to pay the new employee. The maximum is the highest salary you’d pay. Ensure each salary is feasible for your business.
- Though you’d like to pay the lowest possible salary, realize that employees who are satisfied with their pay are more likely to deliver superior results. It’s important that competent employees are sufficiently compensated; your company’s well-being depends on this.
Take a long view
A compensation plan reflects your firm’s stance on employee pay and rewards. You can look at it as a set of practices and policies that align with your company’s mission, vision and strategic objectives. It guides decision-making when creating and distributing compensation.
How you set salaries has a lot to do with your firm’s culture, indicating how employees expect to be treated and rewarded. You don’t want this to be ad hoc — you want consistency and a practical basis to work from.
Having a salary plan helps you focus on attracting, retaining and motivating employees. While consistency is useful, flexibility reflects changing market conditions and your company’s position at any given moment — your business’s size, financial position, industry and objectives. Your research has given you market salary data and told you how hard it will be to find the right talent.
Consider who should be awarded compensation, and base it purely on performance. Maybe you want to offer bonuses as incentives when employees achieve results above targets. For example, the compensation may be based on a percentage of new deals brought in.
You may decide that bonuses and benefits are not just for managers and heads of departments but also for employees at every level who work hard for your company to achieve their goals. When some employees are rewarded, you send a message to the others that their contributions can be worthy of recognition and appreciation. You can motivate the work output of all.
Review your plan regularly to ensure it echoes current market conditions. If there are shortages of skilled workers, you probably want to pay higher salaries to secure the right fit. You want all employees and candidates to perceive your policies as equitable and transparent.
The costs of employee compensation are the highest expenses an organization has, so don’t neglect nonfinancial compensation such as paid time off and training programs, privileges like using the company car, and the process by which employees will progress across salary ranges through promotions based on merit and inflation.
You may want to work with a compensation professional to ensure your salaries are aligned with both your goals and industry norms.