Determining what and how to pay your employees can be overwhelming. Here are some things to keep in mind before you draw out the compensation structure.
Salary formulation for your employees can be a challenging task when you are setting up your own business. The goal with setting the right salary is to compensate your employees appropriately, you don’t want to underpay or overpay them. If you are looking for some help with the entire process, we have listed a few points below that you must follow to make the salary formulation easier.
- Start with a compensation philosophy: It is no surprise that companies attract, retain and motivate the best talent through their compensation policies. Quite often, candidates you interview will ask you about the career progression at your company, which is closely linked to the compensation. Irrespective of the stage your company is in, a compensation philosophy is necessary. Research shows that over 26% of employees leave their job because they were being underpaid. The salary makes up just one component of the overall compensation philosophy; the benefits, leave allowances, flexible work policies and others are also an important part of the compensation package.
- Research and industry analysis: Your company can incur a high cost of paying low salaries. A competitive salary scale not only motivates your employees to do their best and promotes employee engagement, but also is a tangible way to show the employees that you care. In order to get insights into the industry salary trends, you must do your research. You can conduct surveys to get insights into what other employers within your industry are paying their employees. There is enough data available on the internet and you can always attend various networking events to gain perspective into current market trends.
- Bottom of the scale and top of the scale: Before you decide individual salaries, begin with chalking out the maximum you would be willing to pay. You don’t want to pay more than the job is worth to you. Keep in mind the value brought in by the employee you are determining the salary for. Once you have the top of the scale in place, now you want to determine the least you would be willing to pay. Use your market research as this will help you understand candidate expectations. You can now put this data to determine the salaries for employees at different positions in your company.
- Determine how you want to pay your employees: You can choose to pay your employees either a fixed salary or an hourly pay. A fixed salary is common for managers and other white-collar positions while hourly pay is common for temporary employees, some consultants and blue-collar workers. If the work and productivity is directly linked to the hours spent on the job, the employee is compensated based on hourly pay. However, this is distinction varies in different industries. It is a good idea to speak with your lawyer to ensure that your compensation plans are legal. If some of your employees’ compensation plans include commission, you must develop a clear commission scheme.
- Review and transparency: Your employees deserve transparency when it comes to their pay structure. Employers often overpromise to attract or retain a good employee however this is not the right approach. Make sure you are transparent about the compensation philosophy as well as the other benefits. This also aids the compensation reviews that you must conduct on a regular basis. Reviewing your current pay philosophy and compensation structure will ensure you stay within the market range.
Salary formulation can be challenging but it is also one of the most crucial components of setting up your business. Communication and transparency are essential towards developing the right compensation philosophy and keep your employees happy.