How to determine employee salary | BDC.ca
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7 tips to set the right salary for your employees

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Entrepreneurs rely too often on guess work when deciding what to pay their employees. That can spell expensive trouble, especially because compensation makes up a huge percentage of a company’s overhead. You also run the risk of significant wage inequities among employees and suffering the consequences of the resulting dissatisfaction.

“There is often a lot of room for improvement,” says BDC Consultant Irene Lis, who specializes in human resources management. “Once people believe they are paid fairly, money is no longer an issue.”

On the other hand, it should go without saying: If your employees believe they are being underpaid, sooner or later, they will walk away from your company.

Here are seven tips on how to determine a fair wage for a fair day’s work.

1. Create detailed job descriptions

Salaries reflect the level of skills, experience, qualifications and responsibilities required for a given position. If you don’t have a clear idea of what an employee is supposed to be doing, you will have a hard time determining a fair wage.

2. Benchmark

Determining a fair salary isn’t an easy task. You need to look at such factors as job requirements, pay standards in your industry, the size of your company and your geographic location. Benchmark against other companies using these criteria.

“You need to compare apples to apples to come up with the right formula,” Lis says. “For the same job in Montreal and in Kuujjuaq, there are two totally different pay scales.”

Other business owners are a good source of advice. Professional salary surveys can also be useful.

3. Create a salary structure

One mistake entrepreneurs make when hiring is reacting to what candidates ask for, without having a clear idea of what their company should be paying. Pay scales and a bonus structure for all jobs make it easier to decide what to pay a new employee and establishes a sense of equity. “It is honest and clear, and gives people perspective.”

Set up an upper and a lower salary limit aligned to the market and reflecting the value of each position in an equitable manner.

4. Think total rewards

Lis advises companies to consider the total value of all compensation—including incentives, benefits and other rewards—when determining a fair base pay for each position. Consider incentives that reward employees based on individual performance and the organisation’s performance.

Finally, keep things in perspective. The amount you decide to pay has to give you space for future increases.

5. Be realistic

If you are looking for three years of experience, don’t ask for 10 and expect to pay entry level wages.

6. Carefully assess your company’s needs

Lis gives the example of a sales position. If you are looking for a representative whose primary role will be to seek out new customers, you will likely pay a smaller salary and a bigger commission, she says.

But if you are looking for someone to focus on client retention and customer service, you will need to recognize that this person won’t have as much time for pursuing new clients. “The base salary should be more generous, with a reasonable incentive percentage.”

7. Leverage your strengths

Another common mistake entrepreneurs make is trying to compete with large companies on salaries.

Owners of smaller businesses need to be creative to attract talent and ensure they are finding the right kind of person for their company. You may not be able to offer a lot of cash, but you can provide more in non-monetary rewards such as the opportunity to participate in the growth of your business and gain a wealth of experience. The challenge is to find good people who are attracted to those kinds of rewards.

“You will sometimes meet great candidates who you simply can’t afford and who may not even be happy in your environment,” Lis says. “If expectations are too far apart, you have to know when to walk away.”

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