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Experts Reveal the Secrets to Setting Salaries
When setting salaries at your small business, there are really only two questions: "What is the employee worth in my market?" and "What can I afford to pay?"
But before you answer either of these questions, make sure you're hiring for the right reasons. "You should hire only positions that you need, not that you want," says Bill Bartmann of the Bartmann Business Institute. "Decide where you are weakest or what you hate to do the most. That's the job you should be filling. Think of where your business can go when you take care of your weaknesses and focus on your strengths."
Once you know that adding a position to your payroll is the right move, take a look at your cash flow and determine your reserves. "When eyeing the numbers, don't forget to factor in how much additional revenue this person stands to bring to your business, as well as how much additional expense you'll incur in employee benefits," says Christine Midwood, director of surveys for Salary.com. "Remember you're taking on more than just a base salary."
Beyond your company books, the next step is to look at what the marketplace is paying for similar positions. Midwood and Joe Kilmartin, director of compensation at Salary.com, suggest the following resources:
- Salary.com. This Web site has a compensation survey for small businesses only.
- Trade associations. Associations are particularly helpful for niche or specialized industries.
- Bureau of Labor Statistics. The Bureau tracks compensation trends for multiple industries, but be aware that data is about 18 months old by the time the survey is published.
- Chambers of commerce. Chambers are great for pinpointing the going rates in your market.
"However you decide to research, stick to data that comes from HR departments and companies versus individual employees," says Midwood. "People who participate in compensation surveys often aren't accounting for what their employers had to pay in incentives and benefits."
Bartmann suggests contacting staffing agencies as well. "They do this for a living and they typically don't charge for the information," he says. "And make sure to call a few agencies to see if the information corroborates."
Once you know what you can afford to pay and what the market pays, it's time to set the salary. Bartmann says if your business can afford it, pay market plus 10 percent. "As a small business owner, you want to watch your nickels," he says. "But if you're paying someone below what they've asked for to save a few dollars in the beginning, you're costing the business in the end because you're creating an environment for turnover.
"I know it's not what you're used to hearing, but in business, customers don't come first; your employees do," Bartmann continues. "Owning a business is about taking care of the people who are taking care of you. And you start doing that from the very beginning with a compensation [amount] that works for both of you."
Yet, Roberta Chinsky Matuson of Human Resource Solutions says that taking care of employees equates to more than an attractive compensation. "Keep in mind that money is only one slice of the pie. You don't have to be the highest payer in town if your organization is known as a place where employees are highly valued," Matuson says. "Ask your staff why they chose to come to work for your company and why they have stayed. You will then know what differentiates you from the pack."
Lanny Goodman, CEO, Management Technologies Inc., agrees. "Employees are much less concerned about money, within reasonable parameters, when they are feeling engaged, valued, emotionally safe, and energized by their work environment," he says. "If you survey employees when they are in pain, compensation is always at the top of their lists. Take away the organizational pain and compensation falls right off the radar screen."
Midwood says perks that promote work-life balance, such as flexible hours and telecommuting, cannot be underestimated when determining compensation. Goodman also suggests opening the books and sharing profits.
"Open books will help employees understand the economic realities of the business; profit sharing will help them realize they can use their creativity to improve quality, eliminate waste, and reduce costs," he says. "Ultimately, for them, their ability to earn becomes a function of their ability to help make the company profitable."
