NFIB

Tips for Setting Employee Salaries
03/ 28/ 2002


There's an old Dilbert cartoon in which the characters wonder why all the "industry's best" as defined by management, are working at their company for the "industry's lowest" salaries. As always, the cartoon strip hit the mark: to attract and keep good people, you have to pay them well. But just as important as paying well is paying "fairly," based on a person's importance to the company. In today's Workshop, Jeffrey Moses discusses some of the finer points of establishing employee salaries.

The more important an employee is to the ongoing success of an organization, the more he or she should be paid. In general, there are five levels of employee importance: 1. Indispensable; 2. Valuable; 3. Moderately Valuable; 4. Average;5. Easily replaceable.

Indispensable employees are the ones that drive the company forward, bringing in new business, serving as internal organizers, inspiring others in the company to greater heights. These are often found under the titles of CEO's, presidents, vice presidents, managers, and key sales staff. Even large corporations find that such individuals are rare, and must be compensated well in order to be motivated to stay. Witness the high salaries and large perks of top CEO's and presidents of large companies. Small businesses can be even more affected by the performance of such individuals. Recognizing their worth, and paying them accordingly, will help them to focus and remain productive.

While talking about indispensable employees, a special note should be made about top salespeople. Often, the bulk of a small company's new business will be brought in by just a few of its top sales staff. Don't limit the salaries or commission schedules of these productive individuals. When a successful salesperson is being paid on commission, his or her monthly income may be quite high, higher even than many members of management. The temptation is to cut back the commissions when salespeople get to these income levels. But avoid doing so whenever possible. When a person is making a substantial income from commissions, it simply means that they are bringing in a lot of money to the company. Don't discourage this. Instead, encourage it with company-wide recognition and even additional financial bonuses.

Individuals in group two (valuable employees) are also vital to a company, but they are not indispensable and should not be paid as highly. This category generally includes the widest spectrum of employees, some will be valuable secretaries, some will be valuable middle management. Salaries within this category will vary accordingly. By realizing, however, that an employee falls within this category, the initial salary and all subsequent raises can be worked out more easily.

Employees in the three remaining categories, moderately valuable, average, and easily replaceable, should be paid correspondingly less than the first two groups. Again, there will be a range of salary within each category, just as there will be a range of employee value within each.

Never forget that an employee can rise from one category to the next over time, and as a result will need to receive a correspondingly higher salary. This can occur when a person becomes highly expert at his or her job through experience or additional education. Always keep track of employee growth. When a person becomes more vital to the entire operation, he or she may become less motivated unless salary and title are not upgraded accordingly.

If you're just starting to hire new employees and don't know the ranges of salaries, contact other similar businesses (in your area or in other areas)to determine the expected norms. Or you can consult with an experienced accountant who handles companies similar to yours.

Back to the Dilbert cartoon mentioned at the beginning of this Workshop, always try to pay your employees well enough so that they feel they can devote their full attention and energy to their jobs. This may not always be possible for small companies, but it is a goal that should always be kept in mind. After all, a company is no better than its people, even in a Dilbert cartoon.

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