The fair way to set employee salaries
Not sure if you’re underpaying or overpaying? Third-party salary surveys can help.
Thomas, San Francisco
I have a video production company with five full-time editors. I'm always stressed thinking I'm either overpaying them and I'm going to go broke, or underpaying them and am going to lose them and/or they're going to get resentful. Because of this, I realize I manage them nervously, which is not good management. How does one determine pay parity? I would like to pay them fairly so I can stop worrying and pay and manage them with confidence.
By Rose Fox, CNNMoney.com contributing writer
There are plenty of resources out there for both workers and employers who want to make sure that staffers are getting paid neither more nor less than they're worth.
To start with, look at free sites like Salary.com, PayScale.com, and CareerBuilder's CBSalary.com. You can also check the Bureau of Labor Statistics site at bls.gov. For more in-depth data, consider purchasing reports from survey companies that do research in your field. Salary surveys exist for almost every industry. Amy Kaminski, manager of marketing programs for Compdata Surveys, suggests sticking with surveys that get their data from employers: "This will help ensure the accuracy and reliability of the results."
Look for data that's applicable to the type of business you run as well as the type of employee you want. Ted Turnasella of WageLINK.net offers three helpful rules of thumb:
1) Make sure that the job being reported is a match for the job at your company. A good rule of thumb is for the job summary in the survey to represent at least 75% of the duties being performed by employees in the company.
2) Look at the effective date of the data and adjust it for the passage of time. For example, for data that is several months or years old, factor in an annual wage inflation rate of 3%.
3) If the data you are using is national data, it will need to be adjusted to your local market. Salaries in New York City are much higher than those in Brownsville, Texas.
Once you have all that information, consider how it applies to your company, factoring in regional and personal differences that may not be reflected in the numbers. "If a good editor is difficult to find, you may need to pay above market in order to keep these key employees," Kaminski says. "On the other hand, if you offer valued benefits such as flexible hours or above-average health insurance, you may be able to pay at or below market while still keeping your employees happy."
Jennifer Grasz, a CareerBuilder spokeswoman, agrees that soft benefits can matter as much as cash. "Companies are looking beyond salary and incorporating more flexibility into their packages to stay competitive in their recruitment efforts,” she says. “For example, we see more companies offering telecommuting opportunities, compressed workweeks and other alternative work arrangements."
Finally, if it becomes clear that a current employee's salary needs to be renegotiated, don't be shy about showing them the numbers that helped you to reach that decision. "Salary market data moves any pay discussion onto a less confrontational footing," says Dr. Al Lee, director of quantitative analysis for PayScale.com. "Yes, your employees may still look for work elsewhere, but it won't be higher pay that draws them away."
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From Dann I was spoiled in my early career; I worked for a company called Procter & Gamble. They know how to compensate their employees, and it seems to have worked pretty well for over 100 years.
They set salaries at 75% of the current (local) range for each position (based on semi-annual surveys). Everyone gets an automatic bump whenever the survey jumps due to inflation. These bumps are done quietly, one-on-one slip of paper passed from immediate supervisor to the employee.
Then they provide all sorts of employee incentive and profit sharing programs. These are 'paid' to the employees in the form of company stock.
The employees all become "company-men" in a hurry. The company's bottom line is everyone's private concern. Typically, at least 2 out of 3 know what TODAY's stock price is.
Figure out a way to let your employees share in your success, and you will succeed. Don't buy the "best" individuals by paying top salaries, they become competitive prima donnas. Instead build the "best team" by hiring very good people and letting them become a real part of the "company".
If you aren't incorporated (no stock) it might be worth while to incorporate. Or, let your CPA work out an honest and open way to share your profits. Then settle up (at least in part) 2 or 3 times a year.
The employees thus see their income going up at least 4 or 5 times a year. It may only be a few dollars at a time, but it is REAL. When they think about another job, they realize they might get an initial salary boost, but those regular pay hikes and stock for retirement just aren't going to happen with the other company.
From krum krumov I`d like to say that setting the "nice" employee salary is not enough and it is not a proper thing to make employees happy. Think about organizing them a small vacations or SPA procedures at least once a month . Things like this will make your employees much more satisfied, they will respect you more and they will stay at this job longer than you thought. By the way , I`m searching for Writers. Contact me via Facebook
krumvaleriev@gmail.com
From Jim Smith, New York, NY One point that people are missing is if you have more than one person doing the job, are they all pulling the same load? Someone is constantly leaving work because a kid's sick, someone who has a wild weekend and is out recovering, the person left behind has to do his share of the work and the work of the other people. Does that person get compensation? Rarely. They get the work, and they get the burnout and then get let go because it looks like they are making too much money.
From Jon Exeter NH Brad from Chicago's comments are right on track. Depending on the competition, you may not be able to stay at the mid-point. Incentive's give your employees "ownership" to the work and it is a great motivating tool.
From Jon Exeter NH Keep counting beans becuase you'll never make it as a business owner. I really hope you don't manage people because you obviously look at employees as just a number. You obviously think that any job can be done by any person. This business owner has a group of employees with a specfic set of talents. Your formulas will work to tell if the employee is making money for the company. What they won't tell you is if your employees have a certain talent that is in limited supply and your competition will hire them away from you.
From Brad Farris, Chicago, IL For production work like Video editors it makes sense to consider a base salary plus incentive. I recommend a base salary that is no more than the mid-point of the market range that you can discover on the sites the article mentions. Then add onto that some productivity bonuses that pay more for those who are more productive. Those bonuses should only pay out if the project (or company) meets certain financial hurdles to protect you from having to pay more compensation if the project (or company) lost money.
This way you tie pay directly to performance and can set reasonable, and equitable salaries.
From Cal, Deer Isle ME A very odd question for a bean counter such as me. Employer and employee are always at odds over the employees value. I will sound cruel but the fact is cash is king and no matter how much you pay employees will always eventually be unappreciative. Support staff have to be paid some fixed hourly rate but people who are in production that generate your income need a straight formular. They work harder and produce more they can earn more. While minimum wage and other rules often make that straight forward thinking legally impossible one must do good business. Add the total cost of employee (taxes, benefits, supplies etc) then compare to their productivity in income and what you expect as a business return on your investment and time involved. Have the expectations been met? If better then youcan pay more if worse then fire them.
Cal,
I wouldnt agree in the comment that cash is king, and always people want to earn mone and more.
The truth in business, I Think, is that a balaced and clear system to remmunerate the employee, balacen for everyone takes down the expectations and makes a juste system. The important thing is, I think:
1. to hava a balaced system
2. to have a variable salary for achievements
3. use the same policy for every employee, and their position.
The problem comes when subjectuve issues, or the past of the relation with the person makes differences on their salary… there is when poeple feel always they should earn more.
SO i would say keep it objetive and make a system that everyone knows about it… and keep emotios out of the way