11/ 21/ 2006
by Emily McMackin
Pat Zingheim sees it happen a lot: Small-business owners who have paid employees the same salaries for years panic when a new hire asks for more money.
"They let themselves drift further and further away from typical compensation practices––then when it comes time to hire, they overreact," says Zingheim, co-owner of Zingheim-Schuster and Associates, an independent Los Angeles-based human resource consulting firm.
The result? Employers lose a promising employee to competitors or pay more than they should. When it comes to setting salaries, business owners often pay what they've always paid—without knowing if it's enough to draw the best employees, Zingheim says.
With compensation packages becoming increasingly important to new hires, and inflation and a tight job market on the horizon, this is a dangerous way to operate.
"If pay is an afterthought, it'll cost you," says Jason Kovac of World at Work, an association that studies compensation issues.
Comparing yourself to competitors
Salary surveys, especially from local employer groups or trade associations, offer the best benchmark for setting pay, since they include cost of living and labor in your area. Web sites such as Salary.com and Paynet.com also publish surveys for little to no cost, but since the sources may be questionable, Kovac recommends using these sparingly. The Bureau of Labor Statistics (ww.bls.gov) provides a free study that tracks wages and compensation trends, but it runs about six months to a year behind, Kovac says.
Though salary surveys work well for generic titles, such as accountants, assistants or salespeople, they won't address hybrid roles common in small businesses. Factoring these requires blending pay for multiple jobs, then weighting it according to the most vital and time-consuming duties. The biggest mistake Zingheim's partner Jay Schuster sees employers make is valuing seniority over performance, creating an atmosphere of entitlement.
A balancing act
Keep compensation competitive and your budget intact by paying moderately based salaries a little below the average rate and linking them to an incentive plan, Schuster suggests. Not only does this attract the right employees, it motivates them to stay, he says.
Whatever philosophy you base your pay scale on, communicating it to employees is crucial. Provide them with a brochure outlining your pay program. Train managers to give feedback that shows employees how they can move into a higher salary bracket. Talk about your stance on raises during staff meetings.
"Salary data is so rampant now that you owe it to employees to explain how they're getting paid––and what they can do to make more money," Kovac says.
Employers should ask employees how they view adequate pay–– and look for creative ways to reward them, says Beth Gaudio, a staff attorney with the NFIB Legal Foundation.
"Good employers know that they have to look beyond base pay to retain the best talent," Gaudio says.
