NFIB

Structured Salary Policies Motivate Employees
03/ 28/ 2002

Too many small businesses have no specific plan for employee salary increases. As a result, these companies give salary increases based mostly on spontaneous decisions or employee demands. The uncertainty leaves employees anxious about their futures, and can lead to unrest and high turnover.

It also can diminish a company's clout when trying to attract talented new employees, who are interested in seeing an organized, systematic plan for salaries, benefits and overall career advancement. Jeffrey Moses explains how to avoid this by structuring a policy in today's Workshop.

An organized salary policy rests on three fundamentals:

1. Creating detailed job descriptions so that skill and responsibility levels can be determined, enabling salaries to be set relative to the employee's value to the company.

2. Establishing accurate, fair and consistent methods to evaluate employee performance. This enables management to promote employees and determine salary increases, promotions and title changes.

3. Informing employees about details of the plan, and working with them implement it.

To implement an organized salary policy, it's important to describe each position so that it can be compared or ranked with every other position. This allows an incremental salary range to be determined, so that employees always know approximately what salary is standard for their position. Many companies have found that education, special training and previous experience should also be factored in. This helps explain why two people working very similar jobs may have slightly different salaries.

After you write job descriptions, compare your companies' current salaries with those at similar companies. Setting up an organized salary policy establishes a rational, systematic procedure for determining salaries when hiring, promoting or demoting employees within the company.

Evaluating employee performance is critical to the success of an organized salary policy. Managers must be fair and consistent in evaluation, so that employees do not feel like you play favorites.

It's also important that salary increases not be based solely on length of time with the company. It may be traditional to grant a standard salary increase after six months or one year, but most companies have found that after that period, granting increases (and promotions) based on performance, not time, yields better results for the company.

When starting an organized salary policy, it's often a good idea to use employee input in determining job descriptions and evaluation methods. But, as with any new company policy, once the plan is in place, management is responsible for making sure it is used fairly and consistently.

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